Simple Agreement For Future Equity Example Form D In Washington
Description
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FAQ
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%.
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.
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%.
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).
An equity discount rate range of 12% to 20%, give or take, is likely to be considered reasonable in a business valuation. This is about in line with the long-term anticipated returns quoted to private equity investors, which makes sense, because a business valuation is an equity interest in a privately held company.
The SAFE discount is derived by dividing the valuation cap by the typical equity financing valuation and then removing that value from one (representing no discount). In this case, $2 million / $4 million = 0.5 and 1 – 0.5 = 0.5 would be the mathematical representations. Discounts often vary from 0% to 20%.
By filing a Form D, you are providing investors with transparency and protecting them from potential fraud. Access to capital: Filing a Form D can help you raise capital for your business.
Form D Form D is the form the issuer files with the SEC notifying the SEC that it is conducting an offering exempt from registration pursuant to Rule 504, 505, or 506 Regulation D or Section 4(5) of the Securities Act of 1933.
The Form D asks you to list specifics about your fundraising. This includes listing (a) “The Total Offering Amount” (the amount you want raise), (b) “The Amount Sold” (the amount you actually raised), and (c) “The Total Remaining to be Sold” (the amount you failed to raise, but are still trying to raise).
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.
