from Hacker News

Ask HN: Can a SAFE agreement be used before setting up a legal structure?

by rpwverheij on 9/24/21, 8:23 AM with 1 comments

My and a small team are in first contact with investors. We're considering using (the equivalent of) a SAFE agreement to receive first investment. We don't have a legal structure though, and ideally we'd use some of the first investment money to get some advice about how & where to properly setup the legal structure.

Is this possible with a SAFE agreement? Can it be signed / backed by a person? Or does it have to be an agreement connected to an existing legal construct?

  • by brudgers on 9/24/21, 5:33 PM

    The simplicity of a SAFE derives from the simplicity of contracting with a C-corp. If there's no C-corp, it's not simple. You would definitely want your lawyer to review it.

    So it seems like a Catch-22.

    But to me, it is a good test for potential investors. You want an investor who wants to make a SAFE happen and who knows how to do it...one with a track record of working with companies in exactly your situation.

    It's your first rodeo. It should not be your investor's.

    One big reason to use a SAFE is to protect the founders from personal liability...and that's one reason for the C-corp in general.

    The other reason for the C-corp is to accept investment premised on equity growth. If an investor doesn't want returns primarily on equity growth, then they are not suited for investing in startups (in the narrow sense of "startup"). Most investors are not suited for startup investing.

    The real question is is your business a startup in the narrow sense?

    Good luck.