Confirmation Bias in Behavioral Finance
The vast majority of investors fail to perform well in the stock market because of behavioral and emotional reasons. The presence of financial knowledge or the lack of it does not make a huge difference. Instead, it is the behavioral biases that turn out to be the crucial deciding factor. Hence, it is imperative for […]
Investing in Unlisted Companies
There are many asset classes that are available to the common man. The average investor can put their money in stocks, bonds, real estate, gold, mutual funds, etc. However, there are certain asset classes which are not available to every individual. One of the asset classes are “unlisted companies” or private equity. These asset classes […]
Managing Start-ups During an Economic Downturn
Economic cycles are a reality of life. Founders need to be aware of the fact that their start-up company could find itself in the middle of an economic downturn. Such situations tend to be the real test of start-up companies. The poorly managed start-ups face severe cash flow issues during such recessions. A lot of […]
Changes in Financing Policy: Effect on Free Cash Flow
While valuing firms, free cash flow has to be calculated over a number of years. Hence, there is a good chance that the firm may change its financing policies during such a long period. It is for this reason that we need to consider what happens to the cash flows in the event financing policies […]
Are Index Funds not a Good Investment in India?
The Indian equity markets are at an all-time high. This can be largely attributed to the large inflow of savings which is being channelized from the economy to the stock market. A lot of these savings are regularly routed via the mutual fund route. The Indian market is still developing. Hence, a lot of money […]
In the previous article, we have studied about the concept of Simple Agreement for Future Equities (SAFE). However, it is important to note that SAFE is not the only innovative type of financial instrument which has been created for funding startup companies. Another type of financial instrument called Keep It Simple Securities (KISS) has also been created. This instrument has been created specifically to protect the interests of investors.
The SAFE securities had terms that can be considered to be too investor-friendly. Hence, many investors ironically consider these securities to be “unsafe”. In this article, we will have a closer look at KISS securities as well as compare them with SAFE and convertible notes.
The Keep it Simple Securities (KISS) is another financial instrument that has been created with the same purpose i.e. to allow newborn companies to raise funding at reasonable terms. This instrument has also been created with a view to allowing companies to raise money in a short time and at a lower cost.
Just like SAFE securities, Keep it Simple Securities (KISS) are designed to ensure that no lengthy negotiations are required before the investment actually takes place. Just like SAFE securities were created by Y Incubators, KISS securities have been created by a company called 500 startups which is a leader in the field of startup financing. This company has created all the legal documents which are generally required to facilitate funding using Keep it Simple Securities (KISS). Also, they have made all these documents publicly available. So any company can literally just pick up these contracts off the internet and start using them.
The Keep it Simple Securities (KISS) securities are quite similar to convertible debt. This means that just like convertible debt, they accrue interest with the passage of time. Also, KISS instruments have a maturity date just like debt instruments.
The standard interest rate on Keep it Simple Securities (KISS) is 5% and the standard maturity date is 18 months from the date of issuance. Just like convertible notes, Keep it Simple Securities (KISS) instruments can also be converted into equity at the maturity date.
There are two major points of difference between the convertible note securities and Keep it Simple Securities (KISS). They have been detailed below:
The KISS notes put the startup company under the obligation of providing the best deal to KISS investors. Hence, if a better deal is given to other investors at a later stage, the company will be under the obligation of revising the terms of the KISS deal and ensuring that the original investors are given an even better deal. Since these investors are taking a significant risk by investing in an early-stage startup, this clause is attractive to them. Most investors are as worried about losing out on cashing a successful investment as they are about making an unsuccessful one. Keep it Simple Securities (KISS) helps them ensure that they will get maximum benefits if their investment is successful
The major point of difference between SAFE and KISS securities is that KISS has a monthly interest rate and a maturity date. However, there are certainly other differences as well which have been enumerated below:
The Simple Agreement for Future Equity (SAFE) is considered to be too one-sided by the investor community. Hence, the Keep it Simple Securities (KISS) security was created in order to balance the scale.
This security combines the simplicity of least negotiations while raising funds along with protecting the interests of the shareholders. Hence, it should come as no surprise, that Keep it Simple Securities (KISS) are preferred more by investors as compared to SAFE securities.
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