LegalGELegalGE
...

SAFE & Convertible Notes

Is a US SAFE valid in Georgia?

A standard US SAFE under Delaware law needs to be heavily adapted or rewritten to be enforceable and compatible with Georgian corporate law.

What is a Discount Rate?

The discount rate gives early investors a lower price per share compared to later investors in the priced round, rewarding them for early risk.

Can a Convertible Note expire?

Yes, Convertible Notes have a maturity date. If not converted by then, the startup may have to repay the loan with interest.

Do I need to register SAFE in the Public Registry?

The agreement itself isn't usually registered, but corporate resolutions authorizing the potential future share issuance should be filed.

Reading Time

4 min

Published

...

In the modern startup ecosystem, SAFE (Simple Agreement for Future Equity) and Convertible Notes are the most popular and fastest instruments for raising investment. They allow a startup to receive money today but postpone the determination of the company's valuation until a future round. These instruments are particularly attractive at an early stage when precise company valuation is difficult. However, for these American (Silicon Valley) model instruments to be valid and enforceable in Georgia, they need proper adaptation to Georgian legislation. Specialists on Legal.ge offer the preparation of SAFE and convertible loan agreements that are fully compliant with Georgian law and protect the interests of both the startup and the investor.

What Does SAFE and Convertible Notes Service Cover?

Lawyers registered on Legal.ge will help you structure these complex financial instruments. The service includes:

  • Instrument Selection: Consultation on which is better for your situation — SAFE (simpler, no debt) or Convertible Note (loan with interest and maturity date).
  • Defining Valuation Cap and Discount: Assistance in formulating key economic terms: the maximum valuation (Cap) at which the investor converts, and the discount compared to the next round's price.
  • Adaptation to Georgian Law: Translating the standard Y Combinator SAFE or US-style convertible loan into Georgian legal reality (e.g., as a convertible loan or conditional investment agreement).
  • Conversion Mechanisms: Detailed outlining of events that trigger the conversion of funds into equity (e.g., qualified financing round, liquidation, sale).
  • Corporate Formalization: Preparation of partners' meeting minutes approving the issuance of these instruments to ensure smooth share issuance in the future.

Real-World Scenarios When You Need This Service

These instruments are ideal in the following situations:

  • Rapid Funding ("Bridge Round"): You need money quickly to reach the next milestone and don't have time for long negotiations on company valuation.
  • International Acceleration: If you are joining a foreign accelerator (e.g., 500 Global, Techstars), they often use these instruments. You need a lawyer to adapt this to a Georgian company.
  • Valuation Difficulty: You have an idea and a team, but no revenue yet. Valuing the company by traditional methods is impossible, so a SAFE is the best solution.
  • Cost Saving: Conducting a full Priced Round is expensive and labor-intensive. A SAFE is much cheaper and simpler to execute.

Georgian Legal Framework and Regulations

In Georgia, SAFE does not exist as a separate legislative concept, unlike in the US (e.g., Delaware). However, the Civil Code of Georgia (principle of freedom of contract) and the Law on Entrepreneurs allow for the creation of documents with analogous content. The Law on Entrepreneurs explicitly provides for convertible bonds and options, giving a solid legal basis for Convertible Notes. As for SAFE, it is often structured as a future right to receive shares upon the occurrence of a condition. It is critically important that these documents are correctly qualified for Georgian Tax Code purposes as well, so that the investment is not considered taxable income (gift or profit) before conversion.

Service Process

Obtaining this service through Legal.ge is simple:

  1. Strategic Session: The lawyer reviews your financial plans and advises on which instrument (SAFE or Note) better suits your goals.
  2. Drafting: Preparing the document in English (for international investors) or Georgian, considering Georgian legislation.
  3. Negotiation: Assistance in agreeing on terms (Cap, Discount, Interest rate) with the investor.
  4. Signing and Registration: Executing the document and, if necessary, registering the relevant decision in the Public Registry.

Why Choose Legal.ge?

SAFE and Convertible Notes are relatively new to Georgian jurisprudence. Many traditional lawyers may lack experience working with these instruments. On Legal.ge, we have gathered specialists who understand startup law and have practical experience in these types of transactions. Here you will find experts who know how to turn Silicon Valley standards into Georgian reality.

Updated: ...

Specialists for this service

Loading...