Simple Agreement For Equity In Maricopa
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FAQ
For instance, SAFEs typically do not include provisions for debt repayment in the event of company liquidation, leaving investors with little to no recourse if a startup fails. This lack of security can deter investors who are risk-averse or those who prefer to have some form of downside protection.
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).
How to negotiate a SAFE agreement Understand the terms and conditions. Create a term sheet that outlines the conditions you're willing to accept and those you want to negotiate. Align interests with investors. Find investors who offer more than just capital. Come in with a plan. Focus on building relationships.
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%.
SAFE Note Example For example, an investor purchases a SAFE note from your startup with a valuation cap of $10M. Your company's value is set at $20M at $10/share during the subsequent funding round. The SAFE note will convert based on the valuation cap of $10M.
SAFE Example The SAFE investor would receive 6,250 shares under the 20% discount rate term in their agreement, or 15,000 shares if they had a valuation cap of $4 million. If an Investor had both features included in their SAFE agreement, the investor would likely choose the valuation cap and receive 15,000 shares.
Simple agreements for future equity, or SAFEs, are flexible agreements providing future equity rights without immediate valuation. SAFEs are commonly used for early-stage startup funding. Conversion terms are triggered by specific events like equity funding rounds or acquisitions.
Simple agreements for future equity, or SAFEs, are flexible agreements providing future equity rights without immediate valuation. SAFEs are commonly used for early-stage startup funding. Conversion terms are triggered by specific events like equity funding rounds or acquisitions.
