Georgia 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 an agreement between an investor and a company that provides rights to the investor for future equity in the company similar to a warrant, except without determining a specific price per share at the time of the initial investment.
The Valuation Cap is the most important term of a convertible note or a SAFE. It entitles investors to equity priced at the lower of the valuation cap or the pre-money valuation in the subsequent financing. Typical Valuation Caps for early stage startups currently range from $2 million to $20 million.
One of the challenges of using a SAFE is that it can be difficult to predict how much money a company will raise. This is because the valuation cap is not set in stone and can change over time. Another challenge of using a SAFE is that it can delay the equity financing process.
The SAFE price is calculated by dividing the valuation cap by the company capitalization (SAFE price = Valuation cap / Company capitalization). The company capitalization is a company's total value ? the sum of all shares of capital stock and common stock.
A SAFE (Simple Agreement for Future Equity) is a convertible loan without the debt element. Under a SAFE, an investor agrees to make a cash payment (which is not a loan) to a company in exchange for a contractual right to convert that amount into shares when a pre-agreed trigger event occurs.
A simple agreement for future equity (SAFE) is an agreement between an investor and a company that provides rights to the investor for future equity in the company similar to a warrant, except without determining a specific price per share at the time of the initial investment.
Valuation cap ? A valuation cap is a limit on how much a SAFE can be converted to equity ownership in the future. It's the maximum price at which an investor can convert a SAFE to stock: a predetermined amount that ?caps? the conversion price once shares are issued.
It is the maximum valuation at which an investor can convert a SAFE into equity: a pre-negotiated amount that serves to ?cap? the conversion price once shares are issued. Investors prefer low valuation caps: the higher the valuation cap, the smaller the percentage of ownership the investor will get.
As an entrepreneur seeking funding, you have a variety of term sheet options, including the safe (simple agreement for future equity). Originally created by Y Combinator as an alternative to convertible notes, the safe maintains the flexibility of a convertible note but addresses many of its problems.
SAFEs from the investor's point of view Like all early-stage investments, SAFEs can be especially risky because when you provide the funding, you don't end up owning anything. In the event of a liquidation or wind-down, you may get nothing if the SAFE hasn't already converted.