For further clarity, consider the following scenarios:
Example 1: The Rapido team is awarded a $100,000 Black Ambition prize. First, this team must have an entity validly formed under law within 60 days after Financial Counseling that is provided after Demo Day to be eligible to receive the SAFE investment. The Company must also agree if it is not a C Corporation to convert to a C Corporation at or prior to an Equity Financing to be eligible for the SAFE investment. The Company issues a SAFE instrument to Black Ambition in exchange for the $100,000 prize. Black Ambition will receive an economic return on 50% of the Investment Amount. Let’s say that Rapido attracted interest from Venture Capitalists at Black Ambition’s Demo Day. Rapido is offered an investment of $1 million (plus Black Ambition’s $50K Investment Amount) on a pre-money valuation of $5 million for its Series A investment round. Black Ambition would receive a 15% discount on this round given it was the first money in. Rapido’s post money valuation is $6 million. Black Ambition only calculates its ownership conversion based on 50% of the prize. Black Ambition would receive an ownership of $50,000 divided by 85% of the price per share paid by the Venture Capital firm.
Example 2: Southside LLC is awarded the $1,000,000 Black Ambition prize. First, this team must have an entity validly formed under law within 60 days after Financial Counseling that is provided after Demo Day to be eligible to receive the SAFE investment. The Company must also agree if it is not a C Corporation to convert to a C Corporation at or prior to an Equity Financing to be eligible for the SAFE investment.Southside must agree to convert to a C Corporation at or prior to an Equity Financing. The Company will issue a SAFE instrument to Black Ambition of $1 million and use the money to accelerate Southside’s business. Southside attracted a major firm that is prepared to invest $3M in equity at a pre-money valuation of $10 million. Black Ambition will receive an economic return on $250K of that prize. The post-money valuation is $13.25 million ($10M pre-money, plus $3M investment, plus $250,000 Black Ambition prize investment). Black Ambition will receive equity ownership of $250,000 divided by 85% of the price per share paid by the Venture Capital firm.