Calculation of "Liquid/Cash Zakatable" assets in a startup company

As Salaam Wa Aalikum Mufti Sahab,

I hope and pray you and your entire team are doing well.

I wanted to ask about calculation of zakat for an investment in a startup company.

My close relative has invested in a startup company, and asked the management to give him the “liquid/cash zakatable assets” of the business. So he can pay zakat on that.

They came back with a reply which needs some clarification on how “exactly” to calculate “liquid/cash zakat assets”.

Basically, there are following points to consider:-

a) The number is significantly higher - in millions.
b) The number includes the “net cash + any debt elements”. Basically they raised the recent capital using “SAFE” agreement between them and their new investors.

In their own terms:-

“…this is the instrument we used to raise the latest round from a VC fund, and technically in my understanding it is not ‘debt’ but it does give some rights to get back money first in case of liquidation (adverse event) of the company (so somewhat pseudo equity that is not yet converted into shares but equally have the preference nature to it when it comes to liquidation…”

Please see link below:-

Please do note, this SAFE round is for their recent capital raise. My close relative is already a shareholder in the company, from previous round investment.

It’s just that, now they have this sum of “liquid/cash assets” which is significantly higher, and was raised using SAFE agreement. So it kind of does have this form, where the investor has the right to get money back in some adverse event, although it is not debt technically speaking.

So I have following 3 questions in this context, Mufti Sahab

  1. In order to correctly calculate “liquid/cash assets” should we try to subtract the “debt or pseudo debt” elements from the total cash, to get to net cash? Or is zakat eligible for the total amount?

  2. Also in general what should be done for zakat calculation in case of investment in startups? because normally it is not always possible to get accurate “liquid/cash” assets each year from the management. Can we assume some standard percentage each year? The situation of startups change very drastically from year to year.

  3. Also if zakat is coming out to be too much, because of a big increase in the value of share holder, and the investor at the time is not able to pay for that much zakat, what should be done?

JazakAllahu khairan for reading through the question. Please kindly reply at your earliest convenience.

Thank you
Saad Qureshi