Connecticut Simple Agreement for Future Equity (SAFE) is a legal contract often used by early-stage startups and investors to establish a framework for investment. It allows startups to raise funds in exchange for future equity, without specifying the exact valuation or share price at the time of investment. The Connecticut SAFE agreement is designed to provide a transparent and mutually beneficial investment structure. By utilizing this agreement, both startups and investors can mitigate risks associated with traditional equity arrangements. SAFE agreements offer flexibility and simplicity in fundraising, enabling startups to attract investments while postponing the determination of valuation until a later funding round or defined milestone. Connecticut SAFE agreements typically include key provisions such as: 1. Conversion Rights: This establishes the terms of converting the investment into equity shares in future financing rounds or specified triggers, such as an acquisition or IPO. 2. Valuation Cap: The agreement may include a maximum valuation cap, ensuring that investors are not disadvantaged if the company achieves a higher valuation in subsequent funding rounds. 3. Discount Rate: A discount rate may be determined to reward early-stage investors by granting them a lower share price compared to subsequent investors in future financing rounds. 4. Trigger Events: These are events that may lead to the conversion of the SAFE agreement into equity. Common trigger events include the closing of a specified funding round, an acquisition, or an IPO. 5. Termination Events: The agreement may outline circumstances where the SAFE agreement terminates prematurely, which could include bankruptcy, liquidation, or change of control. Different variations of the Connecticut SAFE agreement may exist, depending on the specific requirements of the parties involved, including investors, startups, and legal advisors. These variations might include customized terms, different conversion rights, or additional protective provisions to safeguard investor interests. In summary, the Connecticut Simple Agreement for Future Equity is a flexible investment instrument that allows startups to raise funds quickly without needing to determine the exact valuation at the time of investment. It provides a win-win scenario for both startups and investors by establishing conversion rights, valuation caps, discount rates, and trigger events.
Connecticut Simple Agreement for Future Equity
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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.
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 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.
Determine valuation cap for SAFE. The SAFE discount is derived by dividing the valuation cap by the typical equity financing valuation and then removing that value from one (representing no discount). In this case, $2 million / $4 million = 0.5 and 1 ? 0.5 = 0.5 would be the mathematical representations.
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.
A simple agreement for future equity (SAFE) is an agreement between an investor and a company that provides rights to the investor for future equity in the company similar to a warrant, except without determining a specific price per share at the time of the initial investment.
SAFEs are generally considered taxable at the time of the triggering event, when the SAFE converts into equity (i.e. stock in the company).