By: John S. Morlu II, CPA
Once upon a time, in the frenetic and ever-glittering land of Silicon Valley, there existed an enchanting village known as Techville. This was no ordinary village but a high-octane realm where the air crackled with ambition and the streets shimmered with possibilities. Here, a captivating array of creatures called startups roamed freely, each one buzzing with dreams of grand disruption and groundbreaking innovation. These were no mere aspirations—they were audacious quests to reshape entire industries, from creating the next revolutionary app that reminds you to hydrate (because who needs personal responsibility?) to designing gadgets that ensure your dog feels as valued in a Zoom meeting as you do.
In this whimsical kingdom, two towering figures reigned supreme, their influence as profound as it was mystical. These were the legendary VCs (Vulture Capitalists) and Angels—titles as glamorous as they were misleading. Despite their celestial moniker, Angels were neither divine nor benevolent; instead, they were shrewd, sharp-eyed investors with a penchant for high-risk, high-reward gambles. And VCs? They were the gatekeepers of one of the most coveted treasures in Techville: capital. A scarce and precious resource, capital was the lifeblood that could transform a startup’s feverish dreams into a tangible, market-shaking reality.
On a particularly bright and promising morning, Elon Dust, the audacious founder of a futuristic enterprise known as Quantum Muffins, made his way to the domain of the most feared and revered VC in all of Techville. Quantum Muffins wasn’t your average venture—it was a whimsical concoction of gluten-free, blockchain-powered, 3D-printed muffins that also doubled as NFTs (Non-Fungible Treats, obviously). Elon’s belief in the future of edible assets was so fervent that he confidently boasted, “Investors will eat this up!” Unbeknownst to him, this pun was as deliciously ironic as it was fitting.
Elon’s journey to this pivotal meeting was driven by desperation. His latest venture, though brimming with imaginative zeal, had suffered a minor setback. His $500,000 seed money, which was meant to catapult Quantum Muffins into the stratosphere of success, had been expended on “research”—a euphemism for devouring an unholy amount of muffins in the name of product development. With his cash reserves dwindling faster than you can say “cryptocurrency,” Elon was prepared to face Mark ‘Shark’ Cubanzo, the notorious VC known for his unparalleled ability to squeeze founders more ruthlessly than a detoxifying juicer squeezing out the last drop of kale juice.
In the realm of Techville, where fortunes could be made or lost with the stroke of a pen, Elon was about to discover that the world of venture capital was not just about securing funding but navigating a labyrinthine landscape of intricate agreements and lofty promises. Little did he know, the SAFE (Simple Agreement for Future Equity) awaited—an innovation as seductive as it was treacherous, promising a future of equity with the same ambiguity as a magic trick gone awry.
Chapter 1: The Pitch: Enter the SAFE
Elon Dust walked into Mark ‘Shark’ Cubanzo’s opulent office with the swagger of someone who had just invented the next big thing in human convenience. His PowerPoint presentation was a masterpiece of digital design, adorned with muffin emojis, blockchain diagrams, and a cryptic message that read, “The Future is Baked!” It was, he hoped, a visual feast to accompany his verbal pitch about Quantum Muffins—a startup poised to revolutionize both the culinary and crypto worlds.
Cubanzo, seated in a throne-like ergonomic chair that was rumored to be handcrafted from the finest Italian leather, leaned back with an air of supreme nonchalance. He twirled a gold pen that bore the inscription, “I Own Your Dreams,” as though it were an ancient scepter. His eyes, hidden behind designer sunglasses, glinted with a mixture of intrigue and mischief.
“You know, Elon,” Cubanzo began, his voice dripping with the kind of smugness that only comes from having a yacht named ‘The Underdog,’ “I like what you’re doing here. Muffins, NFTs, blockchain… it’s pure genius. But let’s be honest, my dear friend, we need something a bit more… innovative. More forward-thinking. Have you heard of the SAFE?”
Elon blinked, his face a mixture of confusion and mild alarm. SAFE? Was it a newly released Marvel character, perhaps a superhero capable of safeguarding capital with a single glance? Or was it a cutting-edge gizmo that promised to revolutionize everyday security? The truth, as it turned out, was almost as mystifying. SAFE stood for Simple Agreement for Future Equity. If “simple” was to be interpreted in the same way one might describe quantum physics to a toddler—simple in the sense of utterly perplexing—then yes, SAFE was simple.
Cubanzo, sensing Elon’s bewilderment, leaned forward, his chair creaking with the effort. “Think of it this way,” he explained with an air of professorial patience. “The SAFE is a brilliant new way for us to give you money today—yes, right now, as if we’re Santa Claus delivering a sack of cash to your startup’s doorstep—without you technically owning any of it back. You get capital today, and we get equity tomorrow.”
Elon’s brow furrowed. “Wait… so you’re giving me money for… nothing? Like, I don’t have to give up equity right now?”
“Oh, no, you definitely will,” Cubanzo clarified with a twinkle in his eye that suggested he was about to reveal the punchline to a very elaborate joke. “Just… later. It’s a bit like signing a deal with a genie—except instead of three wishes, you get a single wish with an asterisk. The details of the wish are so vague that even the genie would need a magnifying glass to read them. We might even wish for your company to pivot to something entirely different, like… Quantum Pizza.”
Elon’s eyes widened. “Quantum Pizza?”
“Yes, Quantum Pizza,” Cubanzo replied, seemingly delighted by Elon’s astonishment. “It’s a highly specialized dish that combines quantum mechanics with artisanal pizza making. Think of it as a pepperoni slice that can be in two places at once. Very cutting-edge, very… fashionable.”
Elon, now thoroughly perplexed, tried to regain his composure. “So, let me get this straight. You’re offering me money now, but you’ll decide how much of my company you get later based on… some unknown future valuation?”
“Precisely!” Cubanzo exclaimed, as if he had just described the secret to eternal youth. “It’s like buying a lottery ticket for the future. You get the funds now, but we reserve the right to decide what our share of the jackpot will be when we finally cash in. And who knows? Maybe that jackpot will come with a side of Quantum Pizza.”
Elon’s mind raced. The deal sounded like a game of financial hopscotch, where the rules changed with each jump. He had envisioned himself rolling in funds and accolades, but now he was faced with the prospect of navigating a minefield of vague promises and nebulous terms.
Cubanzo continued, his voice dripping with an almost sinister enthusiasm. “It’s all about flexibility and adaptability. After all, the startup world is a constantly shifting landscape. Who needs fixed terms and concrete agreements when you can have the excitement of unpredictability?”
Elon struggled to keep up. “But what if Quantum Muffins doesn’t turn out the way we expect? What if the muffins aren’t as revolutionary as we hoped?”
“That’s the beauty of it,” Cubanzo said, spreading his arms as though revealing a grand masterpiece. “With a SAFE, you get to enjoy the ride without the immediate burden of giving away equity. If Quantum Muffins takes off, we’ll have our slice of the pie. If it doesn’t, well, at least we had a great time watching the experiment unfold.”
Elon stared at Cubanzo, trying to process the implications. The SAFE sounded less like a financial instrument and more like a high-stakes game of poker, where the rules were made up as you went along, and the house always won.
“Alright,” Elon said hesitantly, “I guess we’ll give it a try. But just to be clear, how will I know how much of my company you’ll own?”
Cubanzo’s grin widened. “Ah, that’s the fun part. You won’t know until the very end. It’s like unwrapping a present on Christmas morning. Except, instead of socks or a new gadget, you might get a whole new strategic direction for your company. Or, who knows, maybe a nice pizza franchise!”
As Elon left Cubanzo’s office, he couldn’t shake the feeling that he had just stepped into a whirlwind of financial jargon and clever wordplay. The SAFE deal was a dazzling gamble, a high-wire act of investment where the future was as uncertain as a weather forecast delivered by a meteorologist on roller skates.
But for now, Elon was ready to embrace the chaos. After all, in the world of Techville, where innovation and imagination ruled supreme, sometimes you had to dance with the devil—or in this case, the Shark—just to keep the dream alive.
Chapter 2: A Brilliantly Confusing Concept
To truly grasp the dazzling enigma of the SAFE, one must embark on a journey through the annals of legal innovation. Picture, if you will, a dimly lit office in a far-flung corner of the legal universe, where a bespectacled lawyer, deeply entrenched in the mundane grind of traditional term sheets, was struck by a moment of sheer, whimsical brilliance—or perhaps sheer, whimsical boredom. This legal virtuoso, whose name is lost to history but whose impact is not, decided that the world needed a fresh twist on the drudgery of financing agreements.
Thus was born the SAFE—the Simple Agreement for Future Equity. If the name sounds like it was pulled from a hat of corporate jargon, you wouldn’t be far off. The SAFE was designed to sound “founder-friendly,” like a kindly old uncle offering you candy, while cleverly embedding a hidden trapdoor labeled: “Exploit This Later.” It’s the financial equivalent of inviting you to a party where you’re promised a great time, only to find out you’re actually the entertainment.
The concept, at first glance, seems almost tantalizingly straightforward: Investors hand over their cash now, and instead of immediately claiming a slice of your startup’s ownership pie, they get the tantalizing promise of a slice later. When—or if—your startup hits it big or raises another funding round, the SAFE converts into equity. But here’s where things get delightfully murky: “later” could be as soon as the next funding round, or as distant as a unicorn sighting in the Sahara Desert. It’s the financial equivalent of a suspense thriller, where the climax and resolution are both shrouded in ambiguity.
As Cubanzo put it, with the smug satisfaction of someone who’s just discovered a new flavor of ice cream, “It’s like giving you a blank check now, but I get to decide how many zeros to write later. Oh, and if you fail, I get to chuckle and say, ‘It was a SAFE bet.’ Get it? Safe! Ha!”
Elon Dust, still grappling with the labyrinthine nature of the SAFE, scratched his head as if trying to dislodge a particularly tricky kernel of popcorn. “But what’s the catch?”
Cubanzo, whose grin was now wide enough to rival the Cheshire Cat, leaned in with an air of mischievous delight. “Oh, there’s no catch. Well… except for a few details.”
Elon’s curiosity was piqued. “Details?”
“Yes, details,” Cubanzo said, eyes twinkling like a mischievous elf. “You see, while the SAFE may sound like a warm hug of financial security, it’s actually a bit more like a box of chocolates with a few pieces missing. For starters, there’s no valuation cap. This means you’re not just agreeing to give us equity at some point in the future; you’re agreeing to a future that’s as unpredictable as a weather forecast delivered by a psychic hamster. We could be talking about significant dilution if your startup skyrockets, or we could end up with nothing if it fizzles out.”
Elon’s eyebrows shot up. “So, you’re saying I could end up giving away a huge chunk of my company if we succeed?”
“Exactly!” Cubanzo beamed. “Think of it as a high-stakes game of Monopoly, where the property values keep changing and the banker (that’s us) holds all the cards. The better your startup does, the bigger the slice we get. And if it doesn’t do so well, well, we still get to say we made a ‘SAFE’ investment. It’s a win-win… for us.”
Elon was beginning to appreciate the twisted genius behind the SAFE. It was like an elaborate game of charades, where the rules were constantly changing, and the prize was not only elusive but also potentially ruinous. “So, how does the SAFE actually convert into equity?”
Cubanzo leaned back, savoring the moment like a cat that had just knocked over a priceless vase. “Ah, the conversion. That’s where it gets even more thrilling. The SAFE converts into equity at the next funding round, but how much equity you end up giving away depends on a multitude of factors: the valuation of your startup, the terms of the next round, and whether the stars align favorably for us.”
Elon’s head was spinning. “Wait, so my equity could be diluted based on factors I can’t control?”
“Bingo!” Cubanzo replied with a grin. “It’s like playing a game of roulette where the house always has the upper hand. But don’t worry, it’s all part of the adventure. The SAFE is designed to be flexible, adaptable, and, most importantly, profitable for those who know how to play the game.”
Elon, now thoroughly bewildered but oddly fascinated, nodded slowly. “Alright, I think I’m starting to get the hang of it. So, what’s next?”
Cubanzo’s grin widened to a nearly comical degree. “Next? Next, we celebrate! You sign the SAFE, we give you the funds, and you get to continue your journey of building Quantum Muffins. Just remember, when you’re pitching your next big idea, you might want to factor in the possibility of a SAFE… or perhaps a Quantum Pizza. It’s all part of the grand financial adventure.”
As Elon left Cubanzo’s office, he couldn’t shake the feeling that he had just entered a new dimension of finance—one where the rules were as fluid as the next tech trend and the stakes were as high as a kite on a windy day. The SAFE was a beautifully perplexing invention, a testament to the whimsical nature of startup financing. And while the path ahead was as uncertain as the next plot twist in a soap opera, Elon was ready to embrace the chaos. After all, in the wild world of Techville, the only certainty was that nothing was ever quite as simple as it seemed.
Chapter 3: The Fine Print of Doom
Welcome to the darkly comic world of the SAFE’s fine print—a territory where promises of simplicity swiftly devolve into a Kafkaesque labyrinth of financial trickery. It’s a place where clarity takes a backseat to complexity, and where investors play a cunning game of sleight of hand that would make even the most seasoned magician blush. Buckle up, dear reader, for a journey into the underbelly of SAFE agreements, where the seemingly innocuous details might just bite you harder than a caffeinated squirrel on a bad hair day.
Valuation Cap: The Time-Traveler’s Dilemma
Let’s start with the Valuation Cap—a feature that might as well come with a warning label reading, “Handle with Care.” Imagine, if you will, that your startup, which started in your garage with nothing but a dream and a questionable haircut, has now rocketed into the stratosphere of success. You’ve managed to get your Quantum Muffins into every Whole Foods across the nation, and your valuation has shot up faster than a SpaceX rocket.
Here’s where the Valuation Cap comes into play. It’s the investor’s magic ticket to a bargain-basement deal on equity. While you’re basking in the glory of your multi-million-dollar valuation, the cap ensures that your investors can convert their SAFE into equity based on a valuation set when they first signed the agreement. In essence, they’re buying shares at a rate that was locked in when your company was still trying to figure out how to make muffins rise. It’s akin to buying tickets for a Beyoncé concert during the pre-sale period but only showing up just in time for the encore—enjoying the perks of a top-tier seat without paying the top-tier price.
Discount Rate: The VIP Access Pass
Next up, we have the Discount Rate, which operates like a stealthy Black Friday sale on equity. This clever feature allows investors to get a discount on the conversion price of their SAFE when your startup raises its next round of funding. Let’s say your company is now worth $10 million. Thanks to the Discount Rate, your investors can swoop in and convert their SAFE into equity as if your startup were still worth $8 million.
It’s as if you’re running an exclusive nightclub where the VIPs get in at the door price of a dive bar. They’re getting the premium experience of your skyrocketing success at a discount, all while you’re left scratching your head at how to explain to your friends why their equity stakes seem to be shrinking. It’s a financial sleight of hand that turns your startup into a veritable buffet for investors—where they get to feast on your success without paying the full price.
No Board Seat: The Phantom Menace
Here’s the kicker: despite not having an immediate board seat, SAFE investors often find ways to influence your startup’s trajectory. You might think that not having a seat on the board means they’re harmless, like a spectator at a wrestling match. Think again. Once the SAFE converts into equity, investors can use their newfound shares to flex their muscles in ways that would make even the most seasoned puppet master proud.
Suddenly, they’re involved in decisions that could impact the very soul of your company. Whether it’s deciding to sell out to a theme park empire in Alaska or pivoting to producing jetpacks for pets, your SAFE investors will have a say in your startup’s direction. It’s like having an invisible hand on the steering wheel of your company’s future—one that only shows up when it’s time to make crucial decisions about your next big move.
The Sly Agreement for Extortion
In summary, while the SAFE might sound like a shiny new financial product designed to simplify funding, it’s really more like a brilliantly executed con job that even the slickest of magicians would envy. With its Valuation Cap, Discount Rate, and the artful dodging of board seats, the SAFE is like a Swiss Army knife of investor-friendly features, cleverly disguised as a founder-friendly agreement.
It’s important to remember that, in the world of SAFEs, the “simple” in Simple Agreement for Future Equity often means “complex,” “tricky,” and “bewilderingly opaque.” So, as you venture into the brave new world of startup funding, keep your wits about you, and don’t be afraid to dig into the fine print. Because in the end, the only thing that’s truly safe is your awareness of the game you’re playing.
Chapter 4: Characters in the SAFEtanic World
In the thrilling and treacherous waters of the startup ocean, where innovation sails and financial icebergs lurk, our intrepid entrepreneurs aren’t always as prepared as they should be. Picture a world where startups navigate the perils of SAFEs with the same grace as a squirrel on roller skates. Our heroes are none other than Elon Dust, Sarah Foundries, and Tommy ‘GigaChad’ Newton—each of whom learned the hard way that not all that glitters is equity.
Sarah Foundries and the Skunk Saga
Sarah Foundries, the brilliant mind behind AirPajamas, was on a mission to revolutionize comfort with her eco-friendly wearables that doubled as air purifiers. Think about it: pajamas that clean the air while you sleep. It’s like having a personal air filter that insists on staying with you through every dream, good or bad.
Enter Richard Bankston, an angel investor whose enthusiasm for SAFEs was matched only by his flair for dramatic gestures. With his devilish grin and an appetite for startup drama, Richard signed on the dotted line, promising to be Sarah’s knight in shining armor. What Sarah didn’t realize was that Richard’s SAFE agreement was a masterstroke of investor cunning.
Fast forward two years. AirPajamas had taken the world by storm, thanks to an unexpected TikTok viral sensation involving a skunk, a misplaced bottle of AirPajamas Freshener, and a highly amusing dance routine. With $5 million in Series A funding rolling in, Sarah’s startup was soaring. But alas, the SAFE reared its ugly head.
Richard’s SAFE converted at a valuation so low it might as well have been a clearance sale. Sarah found herself dishing out a hefty portion of her company to Richard, who suddenly had more influence over her business decisions than she’d ever imagined. It was like taking business advice from a guy who thought a “balance sheet” was a mattress topper. As Sarah cried, “How is this fair?” she was met with the haunting realization that the SAFE had, indeed, done its job—leaving her with a fraction of the pie she had so painstakingly baked.
Tommy ‘GigaChad’ Newton and the Hamster Havoc
Meanwhile, in the exotic realm of Ponziland, Tommy ‘GigaChad’ Newton was making waves with CryptoHamsters—a startup that combined blockchain with hamsters in an effort to create the world’s most adorable cryptocurrency. Tommy’s vision was audacious, to say the least. Hamster-powered blockchain! It’s as if he took the concept of “tiny but mighty” and ran with it, all the way to a $20 billion valuation.
In this epic saga, Tommy signed a SAFE with Elon Muskrat, an angel investor known for his extravagant taste and a cap so low it practically skimmed the floor. As CryptoHamsters ascended to cosmic heights, Muskrat’s investment ballooned faster than an actual hamster’s appetite for sunflower seeds.
Tommy, engrossed in TED Talks and Twitter threads on “The Future of Rodent-Powered Economies,” barely noticed that Muskrat’s share of the company had grown to resemble a hamster’s hoard of nuts. It was a classic case of the SAFE sneaking up behind him, grabbing a hefty chunk of his company, and turning Muskrat into a major stakeholder faster than you could say “CryptoChubbyCheeks.”
The SAFE-ty Dance: Lessons Learned
As we traverse this SAFEtanic world, it becomes clear that the SAFE is less about safety and more about strategic exploitation. It’s like having a financial genie who grants you wishes with one hand while taking back a hefty share of your startup with the other. For Sarah Foundries and Tommy Newton, the SAFE was the ultimate prank—a legal sleight of hand that left them grappling with unexpected equity distribution and investor influence.
In the grand theater of startups, the SAFE is the elusive character who lurks in the shadows, waiting to reveal its true form when you least expect it. It promises simplicity but delivers complexity, offering instant capital with a side of future uncertainty.
So, as our startup heroes continue their adventures, they might want to invest in a good pair of financial binoculars—or perhaps a translator for legalese. After all, in the SAFEtanic world, the devil is in the details, and the details are often wrapped in jargon and hidden behind seemingly innocent abbreviations.
Chapter 5: The Inevitable Conclusion
So, what’s the moral of this tumultuous tale? Buckle up, because it’s a doozy: The next time a venture capitalist or angel investor offers you a SAFE, remember that while it might sound “Simple,” it’s as safe as riding a bicycle made of paper-mâché across a bridge woven from spaghetti strands. Or as dependable as a fortune cookie’s prediction of your future. In short, it’s a financial adventure that could make a rollercoaster look like a gentle carousel ride.
The world of venture capital is a thrilling circus where the clowns don’t juggle balls—they juggle your equity. Founders like Elon Dust, Sarah Foundries, and Tommy Newton learned this the hard way. Each thought they were investing in a shiny new opportunity, only to discover that the SAFE was a well-disguised carnival ride that delivered them straight into the jaws of investor cunning.
As Cubanzo, the benevolent yet shrewd VC, leaned back in his chair, savoring his muffin with the same satisfaction as a cat with a bowl of cream, he mused, “SAFE? More like ‘Sure, Another Founder Exploited.’” It was clear to him that the only thing really “safe” about the SAFE was the protection it offered his own returns. For him, it was the gift that kept on giving—a perpetual treasure chest filled with founder’s sweat, tears, and maybe a few stray muffins.
Elon, now gripped by the full realization of his predicament, gazed forlornly at the agreement he’d just signed. “Is this really a safe bet?” he wondered aloud, his voice tinged with the kind of resignation usually reserved for people who just realized they’ve been scammed by a “free” vacation timeshare.
Cubanzo’s grin widened to epic proportions, the sort of grin that suggested he’d just won the lottery while simultaneously convincing you that paying for his lunch was the least you could do. “For me?” he said, with a wink that could only be described as mischievous. “Absolutely.”
In the grand theater of startup adventures, the SAFE is the ultimate plot twist—a financial bait-and-switch that promises simplicity while delivering complexity. It’s the financial equivalent of discovering that the seemingly perfect house you bought is built on a foundation of marshmallows.
So, as you venture into the dazzling world of venture capital and angel investments, remember: tread carefully, read the fine print like your financial future depends on it (because it does), and keep your eyes peeled for those ever-elusive “simple” agreements. In the end, while the SAFE might sound like a benevolent guardian angel, it often acts more like a tricky imp in a sharp suit.
As our startup heroes continue their quests, armed with the wisdom of their experiences and the occasional muffin, they might just find that the real safety lies in savvy negotiation and a healthy dose of skepticism. And maybe, just maybe, they’ll come out on the other side with their startups intact, their equity unscathed, and a story to tell that’s as rich and flavorful as a Quantum Muffin with all the bells and whistles—minus the SAFE’s hidden traps, of course.
Author: John S. Morlu II, CPA is the CEO and Chief Strategist of JS Morlu, leads a globally recognized public accounting and management consultancy firm. Under his visionary leadership, JS Morlu has become a pioneer in developing cutting-edge technologies across B2B, B2C, P2P, and B2G verticals. The firm’s groundbreaking innovations include AI-powered reconciliation software (ReckSoft.com) and advanced cloud accounting solutions (FinovatePro.com), setting new industry standards for efficiency, accuracy, and technological excellence.
