08 Oct Simple Agreement For Future Equity Accounting Treatment
We then turn to paragraph 815-40-15-7D, which says, “. If the exercise price of the instrument or the number of shares used for the calculation of the comparison is not determined, the instrument (or the incorporated characteristic) remains considered to be indexed to an entity`s own shares if the only variables likely to influence the amount of the invoice were entries at the fair value of a fixed date or an option on the shares. Many companies in the development phase need bridge financing. They are increasingly attracted to standardised instruments such as Simple Agreements for Future Investment (SAFE) and Keep It Simple Securities (KISS). However, the accounting, legal and operational details associated with these agreements are not always straightforward, regardless of the number of their names. This type of language in the CSA is refreshing and reinforces our argument that SAFEs should be accounted for as equity and not as debt. The essential nature of SAFEs is that they are much cleaner than foreign. The risk-return characteristics of SAFEs are those of private equity, not debt. The mandatory repayment relates to a certain depreciation plan, normally with accrued interest, if the financial instrument has not previously been converted into equity. The squeeze-out is most often carried out in the case of compulsorily resable preferred shares. ASPs are not necessarily receptive. (Note that some investors in some companies have written mandatory withdrawal functions in their “SAFEs”.