Partners Keshet Sirota-Leviner, Head of Tax Practice, and Noga Devecseri Spira, Co-Head of Hi-Tech Practice at the firm, spoke at a webinar entitled "Better SAFE Than Sorry" on July 30, 2023. In this moderator-led discussion, Keshet, Noga, and accounting and taxation experts from Deloitte discussed the following key points:
Legal Perspective – Noga Devecseri Spira, Co-Head of Hi-Tech at the firm:
- When considering fundraising options like a SAFE or priced equity round, it's important to perform a cap table simulation to understand the impact on company ownership. Running a simulation that covers a SAFE and a subsequent priced round could help you evaluate the SAFE’s effect on the allocation of shareholdings.
- During negotiations of the commercial terms of the SAFE, consider implementing a mechanism that provides flexibility for additional fundraising within the SAFE framework. Such a mechanism could enable the company to adapt to changing financial needs and opportunities and provide a more dynamic and robust fundraising strategy.
Accounting Perspective – Guy Tabibian, Professional Practice Group Lead, Audits Division at Deloitte:
- For private companies, it is recommended to prepare financial statements according to Israeli GAAP and ensure that SAFE agreements do not include cash settlement alternatives, only share settlement provisions. This will allow classifying SAFE as equity in the financial statements.
- For companies that report in accordance with IFRS, consider including an automatic "Backstop" conversion of the SAFE into a fixed number of company shares after a specified period (e.g., if no qualified financing event occurs within three years from the SAFE issuance). This will enable classifying the SAFE, under certain conditions, as a compound financial instrument, with part of it being treated as a liability and the remainder as equity.
Taxation Perspective - Keshet Sirota-Leviner, Head of Tax Practice at the firm and Gilad Sharir, International Tax Department, Deloitte Tax Division
- Ensure that new SAFE agreements are drafted in accordance with the relevant guidelines.
- SAFE stock conversion terms should not include cash consideration in lieu of conversion.
- Include a non-exemption clause for expenses to be reviewed and approved by the Investment Committee.
The webinar, co-hosted in collaboration with Deloitte, sought to address various questions related to SAFE agreements in the context of legal, accounting, and tax perspectives. It aimed to shed light on the legal advantages and disadvantages of SAFE agreements, their impact on investors and fundraising companies, and their reflection in financial reports.
To watch the recording of the webinar, click here.