Discount: 50% discount. This means that muru-D will receive $75,000 worth of shares worth $150,000 upon its investment. This effectively means that our program value is $75,000. Normally, investors who receive discounts on SAFE`s get a 10-30% discount because they get an investment deal at an early stage. muru-D receives a higher discount due to the additional benefits offered by the program (6 months of training, offices and an alumni program afterwards). If you think our support and network are worth at least $75K, then this is a good deal for your startup. A SAFE grants the right to obtain a certain number of shares of Series A financing. Because SAFE investors invest earlier and take more risk than Series A investors, safe investors pay for their shares at a lower price than Series A investors. The valuation cap and discount rate control the extent of the SAFE investor discount.
As an example of a valuation cap used for conversion, we assume we have a safe investment of $500,000 with a valuation cap of $5,000,000. In the event of a conversion, the SAFE investor will receive shares at the same value as the equity investor (the investor(s) whose investment triggers the conversion), with the valuation cap acting as a closing to deter the SAFE investor from exceeding this price. The valuation cap is currently based on the pre-money value of equity financing, which means that if the equity funding is valued at USD 2,000,000, the SAFE investor`s investment is included in this amount, which means in our example that the SAFE investor would hold 25% of the issued and pending shares just before the closing of the investment. Sometimes a SAFE has both a cap and a discount. In this scenario, the safe holder chooses either the cap or the discount to be used. If there was a 50% discount and a $5 million cap as in the scenarios below, the SAFE holder would choose the rebate because they would give them a lower price per share. As flexible one-document security without many conditions to negotiate, startups and investors save money on attorney fees and reduce the time it takes to negotiate investment terms. Startups and investors usually have only one point to negotiate: the valuation cap. Since a vault does not have an expiry or maturity date, no time or money should be spent on renewing maturity dates, revising interest rates or other.
If we use the first line as an example, we first apply the 20% discount to the proposed pre-money valuation of USD 2,000,000, which gives us a discount rating of USD 1,600,000. . . .