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Conditional Pass-Through Covered Bond
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Sweeping – Meaning, Need and Types
We are already aware that commercial banks are offering several liquidity management services to their clients. In the previous article, we have already studied how notional pooling can help corporations better manage their liquidity. However, notional pooling is not the only option. In fact, there is another option called “sweeping” which is used by the […]
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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