A Crowd Safe is an investment contract between an investor and a start up company; the instrument promises the possibility of a future equity stake, if certain trigger events occur. There is no guarantee that these triggering events will occur. Each company can customize their Crowd Safe, therefore terms may vary.
The Crowd Safe was created and open-sourced by Republic and is an equity crowdfunding-specific version of Y Combinator's Safe (a financial instrument widely used by angels and VCs investing in startups).
When you invest with a Crowd Safe, you become an investor, but not an actual shareholder of stock, unless the company elects to convert the Safe into company stock. Since there is a fixed conversion price, you will always receive the same economic outcome (regardless of whether the company elects to convert) if and when there is a liquidity event.
Please note that under the Crowd Safe, an Equity Financing is not a liquidity event, in this case the company can choose to extend the term of the Crowd Safe or convert investors to Shadow Shares.
The company may also choose to include a “valuation cap” or “discount” (or both) in the Safe.
A valuation cap specifies the maximum valuation an investor will convert their investment into shares. At a financing event (specified in the Safe), investors will convert at the lower of the valuation cap or the price in the subsequent financing.
A discount provision gives an investor a discount to the valuation in a future round of financing; the investor will convert their investment into shares (or cash) at the discounted valuation.
You will not receive a cash or stock return on your investment unless one of the events specified in the Safe offering documents occurs. Generally, you will be waiting for the company to either (a) go public or (b) get acquired by another company. It is important to understand that these securities are not easily traded or sold.
In the event of a subsequent equity financing, the company may elect to “Roll-over” Safe holders and continue the terms of the Safe, or to convert the investment into preferred stock.
If there is a liquidity event during the term of the Safe, you may elect to have your cash returned or to convert the Safe into company stock based on the purchase price and fair market value of the shares.
Please note that there is no guarantee that any of these events occurs; if no subsequent Equity Financing or Liquidity Event occurs, the Crowd Safe will no convert and therefore produce no return.
Republic does not verify information provided by companies on this Portal and makes no assurance as to the completeness or accuracy of any such information. Additional information about companies fundraising on the Portal can be found by searching the EDGAR database.