California Simple Agreement for Future Equity

• Category: Corporations - Startup - Venture Financing Process
• State: Multi-State
• Control #: US-ENTREP-008-4
• Format: Word; Rich Text

Description

This term sheet summarizes the principal terms of the proposed Simple Agreement for Future Equity ("SAFE") financing of a Company, by certain Investors. This term sheet is for discussion purposes, is not binding on an Investor, nor is an Investor obligated to consummate the financing until a definitive SAFE agreement has been agreed to and executed. The term sheet does not constitute an offer to sell or an offer to purchase securities. The California Simple Agreement for Future Equity, commonly referred to as SAFE, is a legal instrument used by startups and investors to facilitate seed-stage fundraising. This agreement offers a simplified alternative to traditional equity financing and provides investors with the option to convert their investment into equity in the future. The California SAFE operates based on the concept of a convertible security, where the investor purchases a right to obtain equity in the company at a later date, typically during a subsequent financing round or specific event. This form of financing is particularly popular in the startup ecosystem as it provides a flexible and straightforward method for raising capital. There are different types of California Simple Agreements for Future Equity that cater to varying investment scenarios. These variations include: 1. pre-Roman SAFE: In a pre-money SAFE, the valuation of the company is determined before the investment is made. This means that the investor's SAFE investment is not factored into the valuation calculation, and the conversion price is set based on the prefunding company valuation. 2. Post-Money SAFE: Unlike the pre-money SAFE, the post-money SAFE considers the investment amount and factors it into the company's valuation. The conversion price in this case is determined by dividing the company's post-funding valuation by the total number of outstanding shares, including the SAFE investment. 3. Valuation Cap SAFE: This type of SAFE includes a valuation cap, which sets a maximum company valuation at which the investment converts into equity. If the company's valuation exceeds the cap during a future funding round, the investor's conversion price is not affected, allowing them to obtain equity at a more favorable price. 4. Discount Rate SAFE: A discount rate SAFE offers an additional benefit to investors, allowing them to purchase equity at a discounted price compared to the valuation of the subsequent funding round. The discount rate is usually expressed as a percentage and provides investors with a predetermined advantage. It is essential for both startups and investors to understand the nuances of each type of California Simple Agreement for Future Equity to determine which version best aligns with their investment goals and desired level of protection. Consulting with legal professionals who specialize in startup financing is highly recommended ensuring compliance with relevant laws and regulations in California.

The California Simple Agreement for Future Equity, commonly referred to as SAFE, is a legal instrument used by startups and investors to facilitate seed-stage fundraising. This agreement offers a simplified alternative to traditional equity financing and provides investors with the option to convert their investment into equity in the future. The California SAFE operates based on the concept of a convertible security, where the investor purchases a right to obtain equity in the company at a later date, typically during a subsequent financing round or specific event. This form of financing is particularly popular in the startup ecosystem as it provides a flexible and straightforward method for raising capital. There are different types of California Simple Agreements for Future Equity that cater to varying investment scenarios. These variations include: 1. pre-Roman SAFE: In a pre-money SAFE, the valuation of the company is determined before the investment is made. This means that the investor's SAFE investment is not factored into the valuation calculation, and the conversion price is set based on the prefunding company valuation. 2. Post-Money SAFE: Unlike the pre-money SAFE, the post-money SAFE considers the investment amount and factors it into the company's valuation. The conversion price in this case is determined by dividing the company's post-funding valuation by the total number of outstanding shares, including the SAFE investment. 3. Valuation Cap SAFE: This type of SAFE includes a valuation cap, which sets a maximum company valuation at which the investment converts into equity. If the company's valuation exceeds the cap during a future funding round, the investor's conversion price is not affected, allowing them to obtain equity at a more favorable price. 4. Discount Rate SAFE: A discount rate SAFE offers an additional benefit to investors, allowing them to purchase equity at a discounted price compared to the valuation of the subsequent funding round. The discount rate is usually expressed as a percentage and provides investors with a predetermined advantage. It is essential for both startups and investors to understand the nuances of each type of California Simple Agreement for Future Equity to determine which version best aligns with their investment goals and desired level of protection. Consulting with legal professionals who specialize in startup financing is highly recommended ensuring compliance with relevant laws and regulations in California.