Nebraska Term Sheet: Understanding the Simple Agreement for Future Equity (SAFE) The Nebraska Term Sheet, specifically the Simple Agreement for Future Equity (SAFE), is a legal document commonly used in startup financing. It outlines the terms and conditions of an investment between a company and an investor, without determining an exact valuation or price per share at the time of the investment. Instead, it provides a framework for potential investment in the form of convertible equity. The Nebraska Term Sheet serves as an instrument for new businesses to raise capital while minimizing complexity and time-consuming negotiations. The SAFE agreement offers flexibility to startup companies as it defers the determination of the valuation until a future equity financing round, such as a priced round or sale of the company. SAFE agreements are often considered investor-friendly, aiming to mitigate concerns regarding future dilution while empowering startups to secure funding efficiently. There are several types of Nebraska Term Sheet — Simple Agreement for Future Equity (SAFE) commonly used, each tailored to different circumstances: 1. pre-Roman SAFE: This type of SAFE does not take into account the company's valuation before the investment, making it suitable for very early-stage startups seeking funding. It entitles the investor to a specified percentage of the company's post-money valuation. 2. Post-Money SAFE: Unlike the pre-money SAFE, this variant considers the startup's valuation at the time of the investment. The investor receives equity in proportion to their investment, considering the valuation post-investment. 3. Valuation CAP SAFE: This type of SAFE specifies a maximum valuation at which the SAFE can convert into equity, protecting investors from excessive dilution if the company's future valuation skyrockets. It creates a mutually beneficial situation for both investors and startups. 4. Discount SAFE: The discount SAFE offers investors the opportunity to purchase equity at a discounted price compared to future investors during a subsequent financing round. This benefit compensates investors for taking an earlier risk. 5. Pro Rata Rights SAFE: This variant of the SAFE agreement grants investors the right to participate in future funding rounds, allowing them to maintain their ownership percentage proportional to their initial investment. It empowers investors to have a say in subsequent financing decisions. In summary, the Nebraska Term Sheet — Simple Agreement for Future Equity (SAFE) serves as a streamlined and flexible tool for startup founders to raise capital without the complexities of traditional financing options. Its various types, including pre-Roman SAFE, Post-Money SAFE, Valuation CAP SAFE, Discount SAFE, and Pro Rata Rights SAFE, cater to different investor preferences and startup needs.
Nebraska Term Sheet - Simple Agreement for Future Equity (SAFE)
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No, a SAFE note is not a loan or debt, it is accounted for an equity on the balance sheet. Unlike convertible debt - or pretty much any debt, it does not have an interest rate nor does it have a maturity date.
In 2020, the number of non-convertible notes (e.g., SAFE notes and KISS notes), used by pre-funding companies is just as prevalent (58%) as the number of convertible debt notes issued.
If a company fails to secure future equity financing or get acquired, then an investor's SAFE will never convert into equity. The SAFE holder will be entitled to repayment in a dissolution of the company, although it's likely there won't be meaningful assets left to pay the SAFE holder in that scenario.
SAFE Note Example For example, an investor purchases a SAFE note from your startup with a valuation cap of $10M. Your company's value is set at $20M at $10/share during the subsequent funding round. The SAFE note will convert based on the valuation cap of $10M.
A safe (Simple Agreement for Future Equity) term sheet is a type of investment instrument used in early-stage startup funding. It allows investors to provide capital to a startup in exchange for the right to receive equity at a later date.
A SAFE is an agreement to provide you a future equity stake based on the amount you invested if?and only if?a triggering event occurs, such as an additional round of financing or the sale of the company.
SAFE (or simple agreement for future equity) notes are financial agreements that startups often use to help raise seed capital. Essentially, a SAFE note acts as a legally binding promise to allow an investor to purchase a specified number of shares for an agreed-upon price at some point in the future.
How to Prepare a Term Sheet Identify the Purpose of the Term Sheet Agreements. Briefly Summarize the Terms and Conditions. List the Offering Terms. Include Dividends, Liquidation Preference, and Provisions. Identify the Participation Rights. Create a Board of Directors. End with the Voting Agreement and Other Matters.