The District of Columbia Term Sheet — Simple Agreement for Future Equity (SAFE) is a legal document used as an investment instrument between startups and investors. This term sheet outlines the key terms and conditions for the future issuance of equity to the investor. It is worth noting that while SAFE agreements are commonly used in various jurisdictions, including the District of Columbia, the term sheet may include region-specific clauses or provisions. A District of Columbia Term Sheet — Simple Agreement for Future Equity (SAFE) typically contains the following sections: 1. Parties: Identifies the startup (issuer) and the investor entering into the agreement. The legal names and addresses of both parties are provided. 2. Capitalization Table: Presents the current ownership structure of the startup, including existing shareholders, ownership percentages, and details of any preferred stock or convertible notes. 3. Valuation Cap: Specifies the maximum pre-money valuation that will be used to calculate the number of shares the investor will receive upon conversion of the SAFE to equity. 4. Conversion Trigger: States the event upon which the SAFE will convert into equity. Common triggers include the pricing round, sale of the company, or an initial public offering (IPO). 5. Discount Rate: Outlines the discount (percentage) applied to the valuation cap at the time of conversion, allowing the investor to benefit from a lower share price relative to future investors. 6. Pro rata Rights: Determines whether the investor will have the right to participate in future financing rounds to maintain their percentage ownership in the company. 7. Governing Law and Jurisdiction: Establishes that the agreement will be interpreted and enforced according to District of Columbia laws, and designates a specific jurisdiction for any legal disputes. While the District of Columbia Term Sheet — Simple Agreement for Future Equity (SAFE) is a standardized form, there may be variations that cater to specific financing needs or investor preferences. For example, investors may opt for a "Capped SAFE" that includes both a valuation cap and a discount rate, or a "Post-Money SAFE" that uses post-money valuation instead of a valuation cap. Overall, the District of Columbia Term Sheet — Simple Agreement for Future Equity (SAFE) is an essential legal document that provides a framework for negotiations and future equity issuance in startup funding rounds.
District of Columbia Term Sheet - Simple Agreement for Future Equity (SAFE)
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FAQ
A SAFE note term sheet is a legal document that aligns early-stage startup funding interests by outlining the key investment agreement terms for entrepreneurs.
Is a SAFE Note a Loan? No, a SAFE note is not a loan or debt, it is accounted for an equity on the balance sheet. Unlike convertible debt - or pretty much any debt, it does not have an interest rate nor does it have a maturity date.
Term sheets are also often used for SAFE or convertible note rounds, but are used less frequently than for priced rounds because of the relative simplicity of SAFE and convertible note legal documents.
A SAFE is an agreement to provide you a future equity stake based on the amount you invested if?and only if?a triggering event occurs, such as an additional round of financing or the sale of the company.
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.
In a Liquidity Event, a safe holder is entitled to receive a portion of the proceeds equal to the greater of (1) a return of its Purchase Amount and (2) the as-converted proceeds it is entitled to in connection with a Liquidity Event (i.e., the proceeds it would be entitled to had its Purchase Amount been converted ...
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.