Georgia Simple Agreement for Future Equity
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How to fill out Simple Agreement For Future Equity?
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FAQ
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.
A SAFE is an investment contract between a startup and an investor that gives the investor the right to receive equity of the company on certain triggering events, such as a: Future equity financing (known as a Next Equity Financing or Qualified Financing), usually led by an institutional venture capital (VC) fund.
A simple agreement for future equity (SAFE) is a contract between an investor and a portfolio company that provides rights to the investor for future equity in the company. It does this without determining a specific price per share when the investment is made.
KISS has many of the same elements as SAFEs but could include maturity dates, interest, and other investor rights. SAFEs are not loans. There is no interest and no maturity date. Convertible notes accrue interest until conversion.
SAFEs are generally considered taxable at the time of the triggering event, when the SAFE converts into equity (i.e. stock in the company). For a post-money SAFE, the triggering event typically means that the investor will receive a predetermined ownership stake in the company ? 10% or 20%, for example.
The SAFE is not considered an equity issuance or ownership in the company. Proceeds from investors are simply considered a liability on the company's balance sheet, and there is no taxable event at this stage.
In recent years, SAFEs have become the most common convertible instrument due to their relative simplicity. Like convertible notes, SAFEs convert into stock in a future priced round. Unlike convertible notes, they are not debt and do not require the company to pay back the investment with interest.
It gives investors a direct discount on the price per share the SAFE will ?convert at relative to the price that the priced round investors will receive. The discount rate for a SAFE is generally between 75-90% (reflecting a 10-25% discount).
A simple agreement for future equity (SAFE) is a financing contract that may be used by a start-up company to raise capital in its seed financing rounds. The instrument is viewed by some as a more founder-friendly alternative to convertible notes because a SAFE is quicker and easier to negotiate and has fewer terms.