Skip to content
i2E
  • Programs
    • For Startups
      • E3
      • Bridge2
      • OCN
    • For Students
      • Entrepreneur’s Cup
    • For Corporations
    • For Investors
  • Client Portfolio
  • About
    • Our Values
    • Meet Our Team
    • Board of Directors
    • Corporate Partners
  • Events
  • Contact
  • Media
  • Programs
    • For Startups
      • E3
      • Bridge2
      • OCN
    • For Students
      • Entrepreneur’s Cup
    • For Corporations
    • For Investors
  • Client Portfolio
  • About
    • Our Values
    • Meet Our Team
    • Board of Directors
    • Corporate Partners
  • Events
  • Contact
  • Media
Search

‘SAFE’ investments carry risks of complication for startups

Get in Touch

By Scott Meacham
Copyright © 2018, The Oklahoma Publishing Co.

Entrepreneurs never have enough time or money. That’s a hard, cold fact. Another hard, cold fact is that venture capitalists often avoid investing in Series A rounds if equity in a company is more diluted than they like.

And a third hard cold fact is that in the pressure cooker atmosphere of a startup’s first 18 to 36 months, many entrepreneurs don’t automatically recognize when a decision that seems smart and easier on its face isn’t necessarily so — especially when it comes to raising capital.

One of those “easier” ways is a fundraising instrument called a SAFE (simple agreement for future equity). It was invented about five years ago by the people at Y Combinator. (Y Combinator is a West Coast incubator/accelerator that makes small seed stage investments in many early stage companies in return for 7 percent equity.)

A SAFE is neither equity nor debt — it’s simply cash given to the startup in return for the possibility of future equity at a hoped-for future round of equity funding or a liquidity event. The idea behind SAFEs was to provide relative fast cash to a startup via an instrument that was efficient and fair for companies and investors alike.

However, in the real world — especially the real world between the coasts where we live — SAFEs are not the simple, easy funding solution that entrepreneurs assume them to be. There isn’t protection for the SAFE investor if the company doesn’t succeed or if the company’s success comes slower than anticipated. With a SAFE, there is no interest in the company’s equity like with a Series A and no debt obligation that is convertible to equity like with the convertible notes that have been traditionally utilized for funding a company in its earliest stages. Also, the instrument lacks the minority investor protections typical of traditional funding transactions.

If the company does make good, SAFEs complicate the company’s capital structure for venture capitalists who come to the table for a true Series A round, especially when a startup CEO doesn’t recognize the true cost of the future equity they are selling off and takes too much financing under a SAFE structure.

Lately, we’ve seen SAFE agreements starting to come up in Oklahoma deals that we were considering. As investors, SAFEs complicate the transaction, both in terms of company valuation and in dealing with prior capitalization of the company. That makes a deal harder to structure, and, for some venture capitalists and angel investors, that can tamp down interest.

SAFEs are just the latest example of decisions that entrepreneurs make about their companies in the early years that can have a far-reaching impact when the company becomes a viable candidate for outside investment.

Without trusted mentors and advisers or experienced service providers who understand the landscape of startups, it is tempting for an entrepreneur to gravitate toward “new” ideas that appear to be easier ways to raise capital than the industry standards of convertible notes or preferred stock equity investments.

That’s why as investors, we work with entrepreneurs and startups before they are ready to raise capital, to help them reduce risk, not add to it by making decisions early on that make the company less, not more, investable down the road.

Scott Meacham is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state’s technology-based startup companies. i2E receives state support from the Oklahoma Center for the Advancement of Science and Technology and is an integral part of Oklahoma’s Innovation Model. Contact Meacham at [email protected]

Read the story at newsok.com

 

More News

Loading...
Blog, Featured, News
06.25.25

i2E Showcases Startup Innovation at Bridge2 Cohort 3 Demo Day

Read more
Blog, Entrepreneur's Cup Featured, Entrepreneur's Cup News
04.25.25

Oklahoma Collegiate Entrepreneurs Take Home Over $167K at Entrepreneur’s Cup

Read more
Blog, Featured, News
12.16.24

MidAmerica and i2E Announce Award Winners

Read more
Blog, Featured, News
11.21.24

i2E & Plains Ventures Surpasses $100M Milestone in Total Investments

Read more
Blog
09.30.24

i2E Receives 2024 Excellence in Economic Development Award from IEDC

Read more
Blog
06.18.24

Bridge2 Demo Day Returns, Highlighting Promising Oklahoma Startups

Read more
Blog, Entrepreneur's Cup Featured, Entrepreneur's Cup News
05.13.24

Student Entrepreneurs Triumph at 20th Anniversary Entrepreneur’s Cup, Winning $158,000 in Prizes

Read more
Default Featured Image
Blog, Entrepreneur's Cup News
04.24.24

Beyond the Cup: Tracking Success Stories from the Entrepreneur’s Cup Series – Jessica Kinsey

Read more
Default Featured Image
Blog, Entrepreneur's Cup News
04.23.24

Beyond the Cup: Tracking Success Stories from the Entrepreneur’s Cup Series – Nathan Fountain

Read more
Default Featured Image
Blog, Entrepreneur's Cup Featured, Entrepreneur's Cup News
04.23.24

Beyond the Cup: Tracking Success Stories from the Entrepreneur’s Cup Series – Srijita Ghosh

Read more
Default Featured Image
Blog, Entrepreneur's Cup Featured, Entrepreneur's Cup News
04.18.24

Beyond the Cup: Tracking Success Stories from the Entrepreneur’s Cup Series – MaxQ

Read more
Blog, i2E
01.30.24

i2E Celebrates Success of Inaugural Bridge2 Demo Day

Read more
i2E

Oklahoma City Office

201 Robert S Kerr Ave, Suite 600
Oklahoma City, OK 73102
+1 (405) 235.2305

Tulsa Office

12 N. Cheyenne Ave, Suite 112
Tulsa, OK 74103
+1 (918) 582.5592

  • Client Portfolio
  • About Us
  • Media
  • Events
  • Contact
  • Resources
  • Funding
  • Venture Advisory

© 2025 i2E Privacy Policy

Follow us:

Linkedin Twitter Facebook Instagram Youtube

Programs

  • For Startups
    • E3
    • Bridge2
    • OCN
  • For Students
    • Entrepreneur’s Cup
  • For Corporations
  • For Investors
  • For Startups
    • E3
    • Bridge2
    • OCN
  • For Students
    • Entrepreneur’s Cup
  • For Corporations
  • For Investors
  • Client Portfolio

Services

  • Access to Funding
  • Venture Advisory Services
  • Events
  • Contact
  • About
  • Our Values
  • Our Team
  • Board of Directors
  • Corporate Partners
  • Media
i2E