FINRA warned investors to exercise caution when investing in Simple Agreements for Future Equity ("SAFEs"). A SAFE is an agreement to provide a future equity stake if a particular triggering event occurs. It is a type of security that can present unique risks for investors, particularly in the context of a crowdfunding offering. FINRA's advice echoed SEC guidance from a May 9, 2017 Investor Bulletin. FINRA advised investors to keep the following risks in mind before investing in SAFE offerings:
- SAFEs are different from common stock in that they do not represent a current equity stake in a company, but instead are agreements to deliver a future equity stake only if a particular triggering event occurs;
- SAFEs are not standardized and the terms across SAFE offerings are not uniform;
- SAFEs may have entirely different triggering events;
- there is no guarantee that a SAFE conversion is ever triggered; and
- investors should take careful note of (i) conversion terms, (ii) repurchase rights, (iii) dissolution rights and (iv) voting rights.
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