[labaraka]

Q: What happens if the startup does well after the safe and doesn't need to raise any money and doesn't have a liquidity event? Are the safe investors stuck with a security which does not derive any economic (e.g., dividends) value and they don't have any control?

[clevy]

This is a high class problem to have! As mentioned above, this seemed to us to be an extreme corner case. To remain simple, we tried not to draft for every scenario (which was hard, believe me - lawyers do this by nature). It may require some patience on the part of the safe holder, but odds are that eventually a company will have a liquidity event.

[amirhirsch]

My company is in one of these corner cases where we haven't converted our debts but still operate with a small, but growing revenue stream. It's possible that I will be able to repay the debts with interest in 2-5 years depending on how well we invest revenues in growth and part-time development. I wonder if it isn't more beneficial for me to have the option of paying back debts from revenues and then use revenues to pay out dividends to shareholders and more beneficial for investors to be able to call on the debt when it comes due if the company has accumulated enough revenues. With a safe, both parties seem to lose leverage over the other. I realize that startups in my situation are probably already a write-off from the investors' perspective, so perhaps it's just cheaper to ignore them, but I could imagine a number of people raising $100K safes ending up with an app that makes $30K per year and investors just get screwed.

[wtvanhest]

What about the case where the business becomes a low growth, life style business. Is there any way to force a liquidity event?

[EGreg]

Convertible notes convert into equity (either at the holder's or issuer's option) on the QFE - a Qualifying Financing Event.

Often that also includes certain revenue threshholds and/or time limits.

Does the "safe" have provisions for this?

[james_alonso]

but in the worst case with the convertible note, the investor gets their money back.

and often but not always, the note will also provide that if the note matures hasn't been a QFE, then the note can convert into common stock.

[asg]

From the documents, it appears that the holder has the option to get money back, or shares in the event of a merger/acquisition. They also have priority rights over shareholders in the event of a dissolution.

So no, they DO derive economic benefits, but it may be a long time coming.

[Edit: this is almost the same as convertible notes. The only difference is that as a debt holder they may be able to force a resolution at maturity, but that is usually to the detriment of the company. But as the preamble says, most angel/VC investors dont actually want to be a debtholder"