A Montana Term Sheet, specifically the Simple Agreement for Future Equity (SAFE), is a legal document used in the field of startup financing. It outlines the terms and conditions between a startup company and an investor regarding the future issuance of equity in exchange for capital investment. One type of Montana Term Sheet — Simple Agreement for Future Equity is the pre-Roman SAFE, which determines the valuation of the startup before the investment is made. It includes the valuation cap, which sets a maximum price at which the investor can convert their investment into equity during a future financing round. Another type is the Post-Money SAFE, which determines the valuation of the startup after the investment is made. It includes the valuation cap as well, but the investor's equity conversion is based on this higher post-money valuation. The Montana SAFE typically includes various key provisions such as the investment amount, a conversion discount (in case of a future financing round), and the triggers for the conversion of the SAFE into equity (such as a qualified financing event or a merger/acquisition). It also states the rights and obligations of both the startup and the investor, including potential anti-dilution protection, pro rata rights to participate in future financing rounds, and any voting rights associated with equity ownership. The document may also specify the essential details of the investor, including their name, contact information, and representation that they are an accredited investor as defined by securities regulations. A Montana Term Sheet — Simple Agreement for Future Equity is a flexible and straightforward instrument that allows startups to raise capital without the immediate need to determine a fixed valuation, making it attractive to both startups and investors. However, it is crucial for both parties to fully understand the terms and seek legal advice before entering into such an agreement to ensure their rights and interests are protected.
Montana Term Sheet - Simple Agreement for Future Equity (SAFE)
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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.
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.
It was originally created by Y Combinator in 2013. A typical SAFE sets out an investment amount, a valuation cap, and a discount, but does not include a maturity date or interest. This means that it is possible that a SAFE investment may never be repaid if an equity funding round doesn't happen.
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. It is a comprehensive blueprint outlining an investment agreement's fundamental terms and conditions.
Experienced venture capitalists expect to see SAFE notes in the equity section of a company's balance sheet - therefore, they should be classified as equity, not debt.
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.
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.
They are accounted for as equity on the balance sheet. When the Simple Agreement for Future Equity converts to preferred stock, the accounting entries are that the SAFE entry is removed and the amount is credited to preferred equity (ignoring any APIC implications).
Discount rate: It allows the SAFE investor to convert to equity at a discounted price in the course of a subsequent round of financing. Discount rates typically range between 10% and 25%, and the discount factor is calculated as follows: [100 ? discount rate]%.
If there is a Liquidity Event before this safe is amended by the MFN Provision, the investor could elect to have the Purchase Amount repaid, or to convert the safe into shares of common stock, based on the fair market value of the common stock at the time of the Liquidity Event.