Puerto Rico Simple Agreement for Future Equity (SAFE) is a financial instrument commonly used in startup financing. It functions as an agreement between an investor and a company, providing the investor with the right to obtain equity in the company at a predetermined valuation in the future, typically during a subsequent funding round or exit event. The Puerto Rico SAFE document outlines the terms and conditions of the investment, including the amount of investment, the valuation cap (maximum valuation at which the investor's equity will be determined), discount rate (a percentage by which the investor's equity is discounted from the next funding round's valuation), and various other provisions. The Puerto Rico SAFE offers flexibility and simplicity compared to traditional equity financing methods, as it postpones the valuation and issuance of actual shares until a later financing round when it is easier to determine the value of the company. This allows startups to raise funds efficiently without undergoing immediate equity dilution or complex negotiations over valuation. There are different types of Puerto Rico SAFE agreements that may cater to specific needs: 1. Basic Puerto Rico SAFE: This is the standard version of the SAFE agreement without any additional customization. It follows the fundamental structure and provisions mentioned above. 2. Puerto Rico SAFE with Valuation Cap: In this variation, a valuation cap is set to ensure that the investor's equity is determined on the basis of a maximum valuation, providing protection against subsequent high valuations. 3. Puerto Rico SAFE with Discount Rate: This type of Puerto Rico SAFE grants the investor a discount from the next funding round's valuation, enabling them to obtain shares at a lower price compared to investors in the subsequent financing round. 4. Puerto Rico SAFE with Multiple Triggers: Multiple trigger provisions can be added to the SAFE agreement to determine the occurrence of certain events that may lead to conversion into equity. These triggers could include milestones, revenue targets, or specific dates. 5. Puerto Rico SAFE with Optional Conversion: Some SAFE agreements may include an option for the investor to convert their investment into a predetermined number of shares or alternative securities in specific circumstances, such as the company's acquisition or a subsequent financing round. Puerto Rico SAFE agreements have gained popularity among startups and investors due to their simplicity, flexibility, and ability to expedite funding rounds. However, it is crucial for both parties to carefully consider and negotiate the terms of the agreement to ensure fairness and alignment of interests. Consulting legal and financial professionals familiar with Puerto Rico startup regulations is highly recommended navigating this financing option effectively.
Puerto Rico Simple Agreement for Future Equity
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How to fill out Puerto Rico Simple Agreement For Future Equity?
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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.
For example, assume a company raises $3M on a $15M cap. Then, later, they raise their Series A round (this will be preferred stock with a stock price and valuation). If the pre-money valuation is only $10M, then it is below the SAFE note's valuation cap.
A simple agreement for future equity or SAFE is a financing agreement between the company and an investor which grants the investor the right to receive shares at a point in the future, based on the valuation of the company at that point (usually the next funding round, often series A).
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.
A SAFE note is simply a legally enforceable promise to allow an investor to buy a certain number of shares at a specific price at a later date. Valuation cap ? A valuation cap is a limit on how much a SAFE can be converted to equity ownership in the future.
A simple agreement for future equity (SAFE) is a financing contract that may be used by a startup company to raise capital in its seed financing rounds. The instrument is viewed by some as a more founder-friendly alternative to convertible notes.
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.
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.