Carolynn Levy, Inventor of the SAFE
I’m lawyer for private companies, though very rarely for VC-backed companies, and to my paranoid mind, the SAFE is at the end of the day not really much more than a term sheet on a handful of key economic terms. Which, in a high trust environment, is just fine the vast majority of the time and the reduction in transaction costs is almost always worth the trade-off! For instance, no one reads the deal documents they’ve paid hundreds of thousands of dollars for (if not more) after they’re signed … until there’s a commercial disagreement, and then every word, and sometimes punctuation marks, can make or break a case, so the docs get read VERY closely at that point. (This is an exaggeration, but directionally true.)<p>But statements like the following from TFA (which I enjoyed quite a bit and found quite interesting) seem like they obviate the protections that are the sole reason for equity investment documents to exist:<p><i>It seems to be that, after a certain point, the utility and success of the SAFE really is contingent on a founder&#x27;s worldview — how much effort they put into tracking dilution, how closely they read the document when they sign off on terms, and whether they keep their promises to investors, even when they don&#x27;t have to.</i><p>If you don’t have to keep it, it’s not a promise! If the fundraising system relies on norms and reputations to enforce baseline expectations, you frankly don’t need contracts - a handshake, an email memorializing key terms and the whisper network is enough to keep founders and investors in line. But for any kind of reasonable legally enforceable rights and remedies, that’s gotta be documented - and unfortunately, usually at great length and expense.<p>(Side note: private equity sponsors frequently, though not as often as they used to, push back on their counterparties in negotiations by telling them “trust us, we’re in the reputation business - if we screw you, no target&#x2F;management team&#x2F;issuer will ever take our money again.” When the sponsor has to choose between its IRR and its reputation, guess which it picks?)<p>I think the SAFE is a cool instrument. I think it’s great for start-ups existing in the right cultural setting. But it’s less a legal innovation than a thoughtful short-form summary of a standardized set of commercial terms.<p>Question to any VC lawyers who happen to see this - have there been many SAFEs litigated?