Guam Simple Agreement for Future Equity

State:
Multi-State
Control #:
US-ENTREP-008-3
Format:
Word; 
Rich Text
Instant download

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.
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FAQ

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.

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.

One of the primary reasons why entrepreneurs should never give up equity in their startup is that it can significantly dilute their ownership stake. When equity is given away, the founders ownership share is reduced and they may no longer have majority control over their company.

How Much Equity Should I Give Up in Series A? In a series A round, founders are advised to give up around 20-25% of equity to investors. These equity investments are often dependent on the kind of startup or business. Some businesses may give up more, while others must give out less equity.

Conventionally, the general guiding principle for a startup is that when giving equity to investors in exchange for their money in your startup, the equity should be somewhere between 10-20% of total equity. Giving more than that to an investor is too much, which is risky for your business.

If you started as a solo-founder and have made progress on the business (especially if you've already raised), you should consider a something along the line of an 80/20 split of founder shares. In fact, the range I'm seeing is anywhere from 5-20% for the 2nd co-founder.

Realistically, you should expect to give away between 10% and 25% at this point. This round is all about getting the necessary funding to build your product, to figure out your product-market fit, and to search for that scalable growth channel.

How Much Equity Should be Given Away in a Seed Round? A general rule of thumb is giving away between 10-20% equity during a seed round. This may likely be to angel investors who are willing to put in checks right at the origin of a company during the early stages.

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Guam Simple Agreement for Future Equity