Note: Aidos Inc. not a registered broker-dealer. Aidos Inc. does not give investment advice, endorsement, analysis or recommendations with respect to any securities.
Continuing on Part 2 of "How It Works" — a 3-Part Series outlining how Aidos' equity crowd-investing platform, which leverages regulatory tailwinds from the JOBS Act, and specifically Title III which is known as the CROWDFUND Act.
At the heart of Aidos' equity crowd-investing platform is a legally binding contract known as a "Modified SAFE." As one of the key innovators in Venture Capital, Y Combinator introduced the SAFE (Simple Agreement for Future Equity) in late 2013, as an "open-sourced" legal template that has helped countless startups raise early-stage capital.
Note: Please consult with a professional legal advisor before using or modifying any terms of the SAFE templates, which will we share momentarily.
Before using the SAFE templates, please understand the SAFE is a "convertible note" - which means its a loan that does not convert to equity until the next financing round.
SAFEs are often used for "Pre-Seed" investment rounds before a priced Seed or Series A.
Here are the Key Legal Terms you need to understand before using the SAFE templates.
1️⃣ Valuation Cap
The cap is an investor-favorable term that puts a ceiling on the conversion price of the debt. Typically only seen in Pre-Seed or Seed rounds, the cap essentially rewards early investors for taking on startup risks relative to future investors in the next round of financing.
The discount, just like the cap, again rewards early-stage investors for taking on startup risks in Pre-Seed and Seed businesses. This is simply a percentage amount - typically between 10% to 30% - that early-stage investors will be allowed to convert their debt into equity during the next financing / priced round.
3️⃣ MFN or "Most Favored Nation"
As the name suggests, this is the "most favorable" term as early-stage investors will automatically inherit better terms that are given to future investors. Obviously, this is to the detriment of investors in the later rounds, so MFN clauses are often frowned upon by later-stage investors.
At Aidos, we intend to use a modified version of the SAFE - a Modified SAFE - that is fully compliant with U.S. Securities Regulations, specifically pertaining to the CROWDFUND Act.
For your reference, here are the four versions of the Y Combinator with options on the Valuation Cap, Discount and MFN Clause.
Stay tuned for the final part of our 3-Part Series on "How it Works." 🚀