California Simple Agreement for Future Equity

• Category: Corporations - Startup - Venture Financing Process
• State: Multi-State
• Control #: US-ENTREP-008-5
• 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 (SAFE) is a derivative of the standard SAFE investment contract that was introduced by Y Combinator as an alternative to traditional convertible notes. It is a legally binding contract between an investor and a startup company, primarily used for early-stage funding in California's vibrant tech startup ecosystem. The California SAFE provides a straightforward and Founder-friendly approach to raising capital by granting investors the right to obtain equity in the company at a future financing round or liquidity event. This agreement has gained popularity due to its simplicity and flexibility, allowing both parties to focus on the growth and success of the startup rather than complex terms and negotiations. The California SAFE is applicable to various types of startup companies, including technology-driven, bio-tech, software, and other cutting-edge industries. It allows investors to support innovative ideas and high-growth potential ventures while minimizing the initial legal and administrative complexities associated with traditional equity financing. There are different types of California SAFE agreements, each serving specific investment scenarios and objectives: 1. Post-Money SAFE: This is the most common type of SAFE used in California. It determines the percentage of equity the investor will receive by dividing their investment amount by the company's post-money valuation during a subsequent financing round. 2. pre-Roman SAFE: In certain situations, startups may utilize pre-Roman SAFE agreements. This type of SAFE determines the investor's equity percentage by dividing their investment amount by the company's pre-money valuation during a future financing round. Typically, pre-Roman Safes are used when the inclusion of outstanding convertible notes or other debt may complicate the calculation of equity. 3. Valuation Cap SAFE: This type of SAFE ensures that the investor's ownership percentage is protected by placing a limit, known as a valuation cap, on the company's valuation during a subsequent financing round. It guarantees that the investor will receive equity based on the lower value between the valuation cap and the actual valuation at the time of the financing. 4. Discount SAFE: A discount SAFE grants investors the advantage of receiving equity at a discounted price compared to the subsequent financing valuation. This discount incentivizes early-stage investors and rewards them for taking on higher risk during the startup's early days. For startups seeking early-stage funding in California, utilizing a California SAFE can be an efficient and straightforward way to attract investors, expand their networks, and support growth. Due to its flexibility and various types, the California SAFE offers a customizable framework that suits the unique needs and goals of both startups and investors alike.

The California Simple Agreement for Future Equity (SAFE) is a derivative of the standard SAFE investment contract that was introduced by Y Combinator as an alternative to traditional convertible notes. It is a legally binding contract between an investor and a startup company, primarily used for early-stage funding in California's vibrant tech startup ecosystem. The California SAFE provides a straightforward and Founder-friendly approach to raising capital by granting investors the right to obtain equity in the company at a future financing round or liquidity event. This agreement has gained popularity due to its simplicity and flexibility, allowing both parties to focus on the growth and success of the startup rather than complex terms and negotiations. The California SAFE is applicable to various types of startup companies, including technology-driven, bio-tech, software, and other cutting-edge industries. It allows investors to support innovative ideas and high-growth potential ventures while minimizing the initial legal and administrative complexities associated with traditional equity financing. There are different types of California SAFE agreements, each serving specific investment scenarios and objectives: 1. Post-Money SAFE: This is the most common type of SAFE used in California. It determines the percentage of equity the investor will receive by dividing their investment amount by the company's post-money valuation during a subsequent financing round. 2. pre-Roman SAFE: In certain situations, startups may utilize pre-Roman SAFE agreements. This type of SAFE determines the investor's equity percentage by dividing their investment amount by the company's pre-money valuation during a future financing round. Typically, pre-Roman Safes are used when the inclusion of outstanding convertible notes or other debt may complicate the calculation of equity. 3. Valuation Cap SAFE: This type of SAFE ensures that the investor's ownership percentage is protected by placing a limit, known as a valuation cap, on the company's valuation during a subsequent financing round. It guarantees that the investor will receive equity based on the lower value between the valuation cap and the actual valuation at the time of the financing. 4. Discount SAFE: A discount SAFE grants investors the advantage of receiving equity at a discounted price compared to the subsequent financing valuation. This discount incentivizes early-stage investors and rewards them for taking on higher risk during the startup's early days. For startups seeking early-stage funding in California, utilizing a California SAFE can be an efficient and straightforward way to attract investors, expand their networks, and support growth. Due to its flexibility and various types, the California SAFE offers a customizable framework that suits the unique needs and goals of both startups and investors alike.