Keep It Simple Securities (KISS)
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.
What are Keep It Simple Securities (KISS)?
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.
Difference Between Convertible Note and Keep it Simple Securities (KISS)
There are two major points of difference between the convertible note securities and Keep it Simple Securities (KISS). They have been detailed below:
- Firstly, all Keep it Simple Securities (KISS) notes have the most favored nation clause. This means that the startup company is promising the investors that their interests will not be subordinated at a later stage.
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
- Convertible notes do not place any restrictions on the startup company when it comes to raising money at different valuation caps. However, Keep it Simple Securities (KISS) places such a restriction. One of the terms of the Keep it Simple Securities (KISS) agreement is that all investors who use this type of security must be offered the same valuation cap.
Difference Between Keep it Simple Securities (KISS) and Simple Agreement for Future Equity (SAFE)
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 Keep it Simple Securities (KISS) have a class of investors called the “major investor”. A major investor is defined as someone who has invested at least $50,000 in a startup firm. There is no such classification of investors based on the amount invested in SAFE securities.
- Keep it Simple Securities (KISS) provides major investors with certain information rights. This is considered to be very valuable by investors as they become privy to information that is not known to the common public and other investors.
- The Keep it Simple Securities (KISS) also provide investors with rights to invest at a later round. Hence, if the startup becomes successful, it will be obligated to allow Keep it Simple Securities (KISS) investors to raise their stakes and hence cash in on their success.
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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