Delaware Simple Agreement for Future Equity

• Category: Corporations - Startup - Venture Financing Process
• State: Multi-State
• Control #: US-ENTREP-008-5
• Format: Word; Rich Text

Description

This term sheet summarizes the principal terms of the proposed Simple Agreement for Future Equity ("SAFE") financing of a Company, by certain Investors. This term sheet is for discussion purposes, is not binding on an Investor, nor is an Investor obligated to consummate the financing until a definitive SAFE agreement has been agreed to and executed. The term sheet does not constitute an offer to sell or an offer to purchase securities.

Delaware Simple Agreement for Future Equity, also known as Delaware, is an investment instrument that allows early-stage companies to raise capital without determining an explicit valuation. It is a popular alternative to traditional equity financing, offering flexibility and simplicity in fundraising efforts. Delaware helps companies attract potential investors by offering them the right to convert their invested amount into equity at a later predetermined trigger event. This agreement is commonly utilized by startups looking for financing rounds and offers advantages such as reduced legal and administrative costs. There are different types of Delaware Simple Agreement for Future Equity, including: 1. SAFE: The most common type of Delaware is the Simple Agreement for Future Equity. It provides investors the right to convert their invested amount into preferred stock when a specific event occurs, such as a subsequent financing round or acquisition. These agreements typically do not include any interest or maturity date. The valuation of the company is determined later during subsequent equity rounds, protecting investors against unfavorable valuations during the early stages. 2. Post-Money SAFE: A Post-Money SAFE is another variant that determines the investor's ownership percentage based on the company's valuation after a specific funding round takes place. The conversion mechanics remain similar to the traditional Delaware, but the investor receives a predetermined percentage of the total shares outstanding after the financing round occurs. This method ensures that the investor's stake is more accurately determined, considering the additional capital injected into the company. 3. pre-Roman SAFE: In contrast to the Post-Money SAFE, the pre-Roman SAFE calculates the investor's ownership percentage based on the company's valuation before a specific funding round. The conversion mechanics are similar to the other Safes, but the investor receives a predetermined percentage of the total shares outstanding before the financing round took place. This type of agreement is less common but may be utilized to reward early investors with a larger ownership stake in the company. 4. Prorate Rights SAFE: Prorate Rights Safes provide additional benefits to investors by granting them the right to participate in future financing rounds in proportion to their original investment. This means that if the company issues new shares, the investor has the opportunity to maintain their ownership percentage by investing in the round. This particular type of Delaware helps protect investor dilution by preserving their relative ownership stake as the company raises further capital. It is important for both companies and investors to thoroughly understand the terms and implications of each type of Delaware Simple Agreement for Future Equity before entering into an agreement. Seeking legal advice and conducting due diligence is highly recommended ensuring compliance with applicable laws and regulations, as well as to protect the interests of both parties involved.