Investing in startups: convertible loan (mútuo conversível) and SAFE
In startup investing, instruments such as the convertible loan (mútuo conversível) and the SAFE make it possible to contribute funds before defining the equity stake. Each model has its own characteristics and effects.
How the initial investment is structured
In the early stages, it is common for the investment not to take place through immediate entry into the company's ownership. Instead, instruments are used that allow the contribution and the later definition of the equity stake, according to events set out in the contract.
The convertible loan (mútuo conversível)
The convertible loan (mútuo conversível) is, in essence, a loan that can be converted into an equity stake in the future, according to agreed conditions. It tends to be used when the parties want to postpone defining the valuation to a later moment.
The SAFE model
The SAFE, an acronym for simple agreement for future equity, is an instrument of foreign origin that also provides for the future conversion of the contribution into an equity stake, generally without the debt logic of the loan. Adapting it to the Brazilian context usually requires care.
Points of attention when structuring
The choice and wording of these instruments influence rights, risks, and taxation. Among the points usually assessed are:
- Triggers and conditions for conversion
- Definition of, or criteria for, the valuation
- Treatment in the event of non-conversion
- Compatibility with Brazilian corporate and tax legislation
Frequently asked questions
What is the main difference between the convertible loan (mútuo conversível) and the SAFE?
The convertible loan (mútuo conversível) starts from the logic of a loan that can turn into an equity stake, whereas the SAFE generally provides for future conversion without that debt structure. The choice depends on the case.
Do these contracts make the investor a partner immediately?
As a rule, no. The equity stake usually occurs only upon conversion, subject to the events and conditions set out in the instrument.
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