Simple Agreement For Future Equity Example With Balance Sheet In California
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FAQ
Locate the company's total assets on the balance sheet for the period. Locate total liabilities, which should be listed separately on the balance sheet. Subtract total liabilities from total assets to arrive at shareholder equity. Note that total assets will equal the sum of liabilities and total equity.
For example, if a SAFE has a valuation cap of $10 million, and your startup's next financing round values the company at $15 million, the SAFE investor's equity will be calculated based on the $10 million cap, not the $15 million valuation.
They are accounted for as equity on the balance sheet. When the Simple Agreement for Future Equity converts to preferred stock, the accounting entries are that the SAFE entry is removed and the amount is credited to preferred equity (ignoring any APIC implications).
The Discount Rate is calculated as 100% minus the percent discount the SAFE investors are entitled to. For example, if SAFE investors are entitled to a discount of 20% (they can buy Standard Preferred Stock 20% cheaper than subsequent investors), the Discount Rate is 80% = 100% - 20%.
SAFEs were first developed by Y Combinator in 2013 as an alternative to convertible notes. A SAFE agreement is a type of convertible instrument, but unlike debt instruments, SAFEs do not accrue interest or have a maturity date, making them an attractive fundraising option for early-stage startups.
