SAFE Liquidity Event Calculation

[stormsailor]

I apologize if this is the wrong forum (and would appreciate alternate suggestions), I have been wracking my brain and hit a wall.

Our small startup was approached by a competitor for acquisition. We’re probably going about this the wrong way but I’m trying to determine how much we would need to be offered to entertain selling. First and foremost, we want to ensure our investors are paid (and will be required by virtue of SAFE agreement terms anyway).

Does anyone have knowledge on SAFE agreements?

I keep getting hung up on the safe conversion. Namely, how to calculate the Liquidity Price.

I have been working through the y combinator user guide examples and feeling super dumb. In particular, can anyone figure out how they are getting the 85% value for the Investor A and B conversion calculations? (See at page 21). Full y combinator document here.

Do I need to run the conversion equations first? That seems nonsensical because without a prospective equity financing I’d be making up numbers.

I appreciate any insight and happy new year to all!

 

[blayne]

@stormsailor SAFE conversions are in the doc. So if it’s a valuation cap, they’ll convert there. If there is no cap and just a discount, and they haven’t converted, they’ll usually get the safe +whatever percentage discount. If you want to be kind, you convert them at a lower price per share

 

[eastsideeric]

@stormsailor Startup/corp lawyer here. Take a look at page 19 - investors A and B collectively own 15%. 1-15=85%, used for calculating liquidation capitalization (per the calcs set out on page 21 that you referenced). Feel free to drop a line if you’d like to talk through this/modeling out a distribution waterfall.

 

[oldilocks]

@eastsideeric Hey! I'm actually having a little trouble with a Liquidity event calculation, where there is actually not an acquisition, but a merger. Meaning I need to get to the as-converted fully diluted CAP table so I can then determine how many (proportionate) shares of the acquiring company are swaped for those of the just converted investors and founders. Basically, do I have to have a share-price value or a fair market value to get there?

 

[eastsideeric]

@oldilocks Yep that’s exactly right.