Alabama Term Sheet - Simple Agreement for Future Equity (SAFE)
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How to fill out Term Sheet - Simple Agreement For Future Equity (SAFE)?
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FAQ
A simple agreement for future equity (SAFE) is a financing contract that may be used by a startup company to raise capital in its seed financing rounds. The instrument is viewed by some as a more founder-friendly alternative to convertible notes.
A safe (Simple Agreement for Future Equity) term sheet is a type of investment instrument used in early-stage startup funding. It allows investors to provide capital to a startup in exchange for the right to receive equity at a later date.
A SAFE note is simply a legally enforceable promise to allow an investor to buy a certain number of shares at a specific price at a later date. Valuation cap ? A valuation cap is a limit on how much a SAFE can be converted to equity ownership in the future.
How to Prepare a Term Sheet Identify the Purpose of the Term Sheet Agreements. Briefly Summarize the Terms and Conditions. List the Offering Terms. Include Dividends, Liquidation Preference, and Provisions. Identify the Participation Rights. Create a Board of Directors. End with the Voting Agreement and Other Matters.
A simple agreement for future equity or SAFE is a financing agreement between the company and an investor which grants the investor the right to receive shares at a point in the future, based on the valuation of the company at that point (usually the next funding round, often series A).
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 funds on the balance sheet When funds come in from a SAFE note, they are added to cash as a debit. We also credit the SAFE notes line item in your balance sheet. Since SAFE notes don't have a maturity date, they don't have to be paid back in 12 or 24 months.
Cons: SAFE investors assume most, if not all, of the risk, in that there is no guarantee of any equity ownership in the company. ... A SAFE holder is not entitled to any company assets in the event of a liquidation.