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Can a Startup issue a SAFE for non-cash benefit?
I incorporate a Delaware C-corp and would like to engage an offshore company to develop the technology. Since I do not have cash to pay them, I offer them a standard YC post-money SAFE for say $50K. Then for the 'Purchase Amount' I sign another agreement with them, that I will purchase engineering services from them for the $50K.
So I do not exchange cash. But bottom line, I offer them payment via stock with a standard SAFE. Is this possible?
- api 7y agoI don't see why not, but be sure you are actually getting $50k worth of engineering services. That seems super-risky. There's a whole population of weird bottom feeders that try to snag equity in early companies by promising the moon to founders and once they have a contract not delivering much if anything. I don't know if these creatures make any money but they do leave a trail of messy crap in cap tables that real investors don't like.
- aperera 7y agoThank you. My question was more about if it was required by any means that the 'Purchase Amount' should be deposited to a bank account first etc for a SAFE to be recognized as legal and issued. Actually the offshore company is under my control, so I have no worries on it, but since it will actually need to spend money to hire and pay engineering team to develop the technology but IP needs to be given to the US based startup to secure funding later on
- api 7y agoI'd still ask a lawyer or accountant.
- techslave 7y agothat’s yucky. you’re messing up your cap table (the equity is just going to yourself) to avoid patriating money to avoid paying taxes. for the paltry sum of $50k. just give the company a personal loan. it’s way too early to start financial engineering.
- chews 7y agoI would not say that it is yucky, it is not that uncommon to see in startup incubators a part of their "standard deal" is a whole bunch of services provided at retail cost to the startup and to be paid later. This is often how lawfirms take risk in startups, they structure it as 200K in legal services and I've seen its expressed as a claim on their captable.