Puerto Rico Simple Agreement for Future Equity
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How to fill out Simple Agreement For Future Equity?
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FAQ
Valuation Cap It is designed to protect the investor from excessive dilution in subsequent financing rounds. While valuation caps are not required for SAFE Notes, they are often included. Just like with convertible notes, the valuation cap sets a maximum conversion price for the cash to convert into shares.
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.
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.
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.
Types of valuation cap safe notes A valuation cap, but no discount ? A safe was purchased for $100,000 by an investor. The Discount Rate is 85% and the Valuation Cap is $8,000,000. The company has agreed to offer $1,000,000 of Series A Preferred Stock to investors at a pre-money valuation of $10,000,000.
Impact of Valuation Cap and Safe Note on Discount Rate The cap is a maximum on the valuation in the following round, whereas the discount is a percentage off in that round. Early investors will not get a discount and extra shares if the cap is surpassed in the subsequent round.
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.