The Oregon Simple Agreement for Future Equity (SAFE) is a legal instrument designed to facilitate early-stage investment in startups. It originated from the Y Combinator SAFE and has been adopted and modified for use in Oregon. The Oregon SAFE is an innovative financial tool that allows startups to secure funding without determining a valuation at the time of investment. The Oregon SAFE operates as a convertible security, entitling the investor to convert their investment into equity shares at a later equity financing round or a specified liquidity event. This type of agreement is particularly beneficial for both startups and investors who prefer not to establish a fixed valuation during the initial investment stage. There are different types of the Oregon SAFE, each with its own variations and attributes. Here are a few of the notable variants: 1. Valuation Cap SAFE: This type of Oregon SAFE places a cap on the valuation at which the investment will convert into equity. It ensures that early investors are protected by not converting their investment at a valuation higher than the predetermined cap. 2. Discount SAFE: The Discount SAFE offers investors a discount when converting their investment into equity during subsequent financing rounds. It incentivizes early investors by providing them with favorable conversion terms as compared to later investors. 3. MFN SAFE: The Most Favored Nation (MFN) SAFE ensures that if the company issues Safes with more favorable terms to subsequent investors, the earlier SAFE investors will automatically benefit from those terms. It helps early investors maintain the same benefits as newer ones, reducing the risk of dilution. 4. Pro Rata Rights SAFE: This type of Oregon SAFE grants investors the right to participate in future financing rounds to maintain their ownership percentage in the company. It ensures existing investors can participate in subsequent equity offerings on a pro rata basis to prevent dilution. 5. Consolidated SAFE: The Consolidated SAFE combines multiple Safes into a single document. It simplifies administration for startups and investors who have participated in multiple SAFE rounds, consolidating all the terms into one agreement. Overall, the Oregon Simple Agreement for Future Equity serves as a flexible investment tool well-suited for startups and investors seeking to raise capital while deferring valuation discussions. Its various types allow customization based on the specific needs and preferences of both parties, fostering an environment conducive to early-stage investment in Oregon's vibrant startup ecosystem.
Oregon Simple Agreement for Future Equity
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How to fill out Oregon Simple Agreement For Future Equity?
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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.
Like all early-stage investments, SAFEs can be especially risky because when you provide the funding, you don't end up owning anything. In the event of a liquidation or wind-down, you may get nothing if the SAFE hasn't already converted.
Calculation ing to the Discount Rate The total shares are calculated ing to the SAFE money invested divided by the share price in the next round, multiplied by the discount rate. If we take our example above, if during the next financing round, the company raises money ing to a share price of $10.
Due to the fact that SAFE notes are converted to equity only when the startup is able to raise funds for its next round, it carries a small amount of risk for investors. There is a chance that an investor's investment may never be converted into equity.
A simple agreement for future equity delays valuation of a company until it has more performance data on which to base a valuation. At the same time, it promises an investor the right to buy future equity when a valuation is made. A SAFE can be converted into preferred stock in the future.
SAFEs are generally considered taxable at the time of the triggering event, when the SAFE converts into equity (i.e. stock in the company).
Overall, giving up equity in a startup can be an effective way for founders to raise capital and attract talented employees. However, these benefits must be weighed against potential cons such as dilution of ownership and control, increased time commitment, higher expenses, and decreased long-term value.
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.