SAFT vs SAFE (2024)

As more startups seek to raise funds through cryptocurrency and blockchain-based platforms, two popular legal frameworks that have emerged are the Simple Agreement for Future Tokens (SAFT) and the Simple Agreement for Future Equity (SAFE). While both SAFT and SAFE are designed to provide startups with an alternative to traditional financing options, they have different legal structures and implications for both the startup and the investor.

What is a SAFT?

A SAFT is a legal agreement between a startup and an investor that provides the investor with the right to receive tokens at a future date, once the tokens are created and available for sale. The SAFT is typically used by startups that are developing a blockchain-based platform and are seeking to raise funds through an initial coin offering (ICO). In a SAFT, the investor is essentially buying the right to receive tokens once they are created, rather than purchasing the tokens themselves.

What is a SAFE?

A SAFE is a legal agreement between a startup and an investor that provides the investor with the right to receive equity in the startup at a future date, once the startup completes a specified event, such as a funding round or an acquisition. The SAFE is typically used by startups that are seeking to raise funds through a seed or early-stage financing round. In a SAFE, the investor is essentially buying the right to receive equity in the startup once it reaches a specified milestone, rather than investing in equity directly.

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Differences between SAFT and SAFE:

1. Legal structure: SAFT is a securities offering and is subject to securities laws and regulations, while SAFE is not considered a security and is not subject to the same laws and regulations.
2. Investor rights: SAFT provides investors with the right to receive tokens, while SAFE provides investors with the right to receive equity in the startup.
3. Payment: SAFT requires investors to pay for the right to receive tokens, while SAFE does not require payment upfront.
4. Dilution: With a SAFT, the investor is not subject to dilution until the tokens are created and sold, while with a SAFE, the investor's equity can be diluted if the startup issues more shares in a future financing round.

Which is better: SAFT or SAFE?

The answer depends on the startup's specific needs and goals. SAFT is more suitable for blockchain-based startups that are seeking to raise funds through an ICO, while SAFE is more suitable for startups seeking to raise funds through seed or early-stage financing rounds. Both SAFT and SAFE have their own advantages and disadvantages, so it is important for startups and investors to carefully consider their options and consult with legal and financial experts before making a decision.

In conclusion, SAFT and SAFE are two popular legal frameworks that provide startups with an alternative to traditional financing options. While they have different legal structures and implications, they both offer startups and investors with unique benefits that can help drive growth and success. As with any investment or legal agreement, it is important to do your due diligence and seek professional advice before making any decisions.