New agreement « SAFE » (Simple agreement for future equity)

The Ministry of Economy of the Republic of Armenia is amending the Law of the Republic of Armenia "On Joint Stock Companies", which provides for the introduction of a new format for the conclusion of investment agreements, called « SAFE » (Simple agreement for future equity).

Particularly, under such an agreement, an investor will be able to invest in a start-up on condition that he receives shares, generally at a predetermined price, when certain milestones are reached, e.g. listing on the stock exchange, attracting new investment, etc. If the company goes bankrupt, the investor will, under certain conditions, recover the funds invested.

The new « SAFE » scheme involves the conversion of early stage investments into a block of shares on a similar principle, but does not involve the application of an interest rate and has no maturity period, making it more flexible.

The investor invests funds in a project in exchange for an obligation to allocate a proportional share of shares after evaluating the startup; the start-up invests these funds in the development of its solution and expands its business, thereby increasing its turnover; when a start-up is ready for a new round of funding, it seeks out Series A investors and receives a valuation; on the basis of the valuation received, the start-up determines the current value of its shares; the amount of the investment is divided by the value of the share, and the corresponding share is transferred to the initial investor.