The New Mexico Simple Agreement for Future Equity (SAFE) is a legal document commonly used in the state of New Mexico to raise funds for startups and early-stage companies. It offers a simplified method for investors to provide financing to these businesses in exchange for the right to obtain equity shares in the future. Unlike traditional equity financing or convertible notes, the New Mexico SAFE allows companies to secure funding without determining an immediate valuation or interest rate. This makes it an attractive financing option for both founders and investors. The agreement outlines the terms and conditions of the investment, including the triggers for converting the SAFE into equity shares and any associated rights or preferences. There are different types of New Mexico SAFE agreements, tailored to meet specific needs and circumstances. Some common variations include: 1. Valuation Cap SAFE: This type of SAFE sets a maximum valuation at which the investor's investment will convert into equity. It provides protection to the investor if the company achieves a high valuation in subsequent funding rounds. 2. Discount Rate SAFE: In a Discount Rate SAFE, the investor receives a predetermined discount on the price per share when the SAFE converts into equity. This type of SAFE rewards the early investor for taking on higher risk compared to later investors. 3. Equity Interest SAFE: An Equity Interest SAFE offers investors the right to obtain a specific percentage of equity in the company upon conversion. This differs from other types of Safes as it specifies the exact equity stake the investor is entitled to. 4. Cap and Discount SAFE: This type of SAFE combines both the valuation cap and discount rate mechanisms, offering investors added protection against an increase in valuation and a discounted share price upon conversion. The New Mexico SAFE provides flexibility for both companies seeking funding and investors aiming for potential returns. It offers a simplified and efficient method for raising capital without the complexities often associated with more traditional investment agreements. Overall, the New Mexico SAFE serves as a valuable tool in fostering the growth and innovation of startups and early-stage companies throughout the state.
New Mexico Simple Agreement for Future Equity
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How to fill out New Mexico Simple Agreement For Future Equity?
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FAQ
Doesn't accrue interest. One major concern investors have about SAFE documents over convertible notes is that SAFE documents are not debt instruments and therefore do not accrue interest.
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.
A SAFE is neither debt nor equity, and there is no interest accruing or maturity date. What if the company fails? If the company fails, whatever money they have left will be returned to investors. If you're the founder, this doesn't mean you need to pay the money back if the company fails.
SAFEs may have similar conversion features but lack the debt hallmarks of convertible notes. In particular, a SAFE has no: Maturity date. Until a conversion event occurs, SAFEs remain outstanding indefinitely.
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.
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.
Trigger Event: The event will trigger the SAFE Note conversion into equity. This could be a future equity financing round, an acquisition, or a specific date. Valuation Cap: The maximum valuation the SAFE note can convert into equity.
If the company fails, the investors who provided funding through the SAFE will typically have to write off their investment as a loss. This means that they will not be able to recoup the money they invested, and will need to consider the investment as a loss for tax purposes.
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.
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.