Yesterday, I gave you the rundown on Atom Limbs.
We looked at the high-level perspective, the risk and reward of a MedTech company.
Brief summary: There’s quite a bit of both.
We also got into the nitty-gritty of the company’s financials, specifically looking at their burn rate, debt, and cash on hand.
This has a direct relationship with the thing I want to talk about today:
In other words, what is the actual security that Atom Limbs is offering?
This is one of the trickiest parts of my job, because the SEC has very strict regulations around what I tell you here.
Specifically, I can say NOTHING about Atom Limb’s actual security offering. You’ll have to research it for yourself.
You can find it on their Investment Page in the spot I’ve marked with the red box:
So, we’re not actually going to talk about what type of security Atom Limbs is offering…
And we’re going to have a COMPLETELY UNRELATED discussion of a particular kind of security:
The SAFE note.
SAFE is actually an acronym that stands for “Simple Agreement for Future Equity”.
Sometimes, on an Investment Portal or an investing contract, this will simply be called a “Future Equity Agreement”.
The SAFE note was a security type invented by Y Combinator, the grand-daddy of all startup accelerators.
Essentially, with a SAFE Note, you are buying the right to stock at a future date. Namely, a future raise or a major exit (IPO or buyout).
The stock you get will be awarded to the buyer based on the market cap at the time of purchase. This is a good thing, of course. You’re buying in early, you want your equity to reflect that before the company grows.
The SAFE Note is easy and cheap for a Startup to set up, which is why many opt for this method.
However, in my opinion, the SAFE note is extremely favorable to founders because it is not ACTUALLY equity. It is the promise of equity… Under conditions.
Remember, that SAFE doesn’t convert to equity until there’s another round raised.
So we would never want to invest in any company with a SAFE unless we were confident they would raise again.
And this brings me back to where we all started: Atom Limbs.
Let’s say, hypothetically, Atom Limbs was using a SAFE Note. Would that be good or bad for investors?
Let’s take a look at their financials:
- They have less than $7,000 on hand as of Sept. 16th
- Their burn rate is $10,000+ per month
- They have $200,000+ in short term debt
- They have raised about $500,000 in this current raise
- They have stated they will not be profitable for another 2 years, minimum
None of this is truly shocking. The short-term debt and the lack of cash on hand is a little troubling, but if I am betting that they will be able to claim $500,000+ in this raise (likely, barring a PR scandal), that is less dire.
However, it is pretty clear to me that this company is going to raise again, based on their financials.
And that’s exactly what I would expect from a MedTech/BioTech company.
Despite riding a sweetheart DARPA Grant for 15 years, they still need tons of money to get airborne.
At the same time, they have basically unlimited room to grow.
If this company was offering a SAFE Note, I would consider that a “safe” bet for my personal portfolio (specifically based on security type).
Though – let me be loud and clear here – I am NOT an investor in Atom Limbs. Nor am I a personal financial advisor.
I am a teacher…
I hope you found this lesson valuable.