Simple Agreement For Future Equity Example With Cons
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FAQ
However, there are also some disadvantages to using SAFE agreements, such as being less familiar and accepted than convertible notes, diluting founder's ownership and control, creating uncertainty for the investor, and complicating the cap table and subsequent funding rounds.
Are Simple Agreements for Future Equity accounted for the same as SAFEs? Yes, Simple Agreements for Future Equity are SAFEs - the same instrument, just not abbreviated. They are accounted for as equity on the balance sheet.
A Simple Agreement for Future Equity (SAFE) is a contractual agreement between a startup company and its investors. It exchanges the investor's investment for the right to preferred shares in the startup company when the company raises a future round of funding.
Suppose a SAFE is issued with a 20% discount. This means if the SAFE investor invested $40,000 in a startup whose price per share at the time of future investment comes out to be $10, he'll get the share at a 20% discounted price, which is $8. This means he'll get 5000 shares instead of 4000.
SAFE agreements are high risk. These investments don't convert to equity unless a liquidity event occurs. The standardization of SAFE agreements inhibits flexibility. This type of investment instrument lends less flexibility than others. ... SAFE contracts can be hard to get out of.