Guam Simple Agreement for Future Equity (SAFE) is a contractual agreement that allows early-stage companies to raise funds from investors in exchange for a promise of equity in the company at a later stage. The Safes originated from Silicon Valley and have been widely adopted as an alternative to traditional equity financing. Under a Guam SAFE, the investor provides capital to the company without determining an explicit valuation at the time of investment. Instead, the investor receives the right to obtain equity in the company during a future equity round, typically when the company undergoes a valuation event, such as a funding round or acquisition. This structure benefits both the company and the investor by simplifying the investment process and avoiding the need to determine an immediate valuation. There are several types of Guam SAFE agreements, each catering to specific circumstances or investor requirements: 1. Simple Agreement for Future Equity — Classic SAFE: The most commonly used version of Guam SAFE. In this agreement, the investor receives equity in the company based on the terms agreed upon during the future valuation event. 2. Simple Agreement for Future Equity — Valuation Cap SAFE: This type of SAFE agreement introduces a valuation cap. It sets a maximum valuation at which the investor can convert their investment into equity, ensuring they benefit if the company achieves a high valuation. 3. Simple Agreement for Future Equity — Discount SAFE: In a Discount SAFE, the investor receives a discount on the future valuation event, enabling them to purchase equity at a lower price compared to other future investors. The discount rate is typically prenegotiated and stated in the agreement. 4. Simple Agreement for Future Equity — Most Favored Nation SAFE: This unique SAFE type provides further protection to investors by ensuring they are entitled to receive additional terms if the company offers more favorable terms to subsequent investors. 5. Simple Agreement for Future Equity — Pro Rata Participation SAFE: A Pro Rata Participation SAFE grants the investor the right to invest additional funds in future funding rounds, maintaining their ownership percentage in the company. This type of SAFE is favorable for investors who want to retain their share of ownership and have the ability to invest more when the company raises further capital. Guam SAFE agreements provide flexibility and simplicity in early-stage investments while setting clear expectations for both the company and investors. By leveraging these agreements, startup companies can efficiently raise funds, focus on growth, and attract potential investors interested in participating in future success.
Guam Simple Agreement for Future Equity
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How to fill out Guam Simple Agreement For Future Equity?
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One of the primary reasons why entrepreneurs should never give up equity in their startup is that it can significantly dilute their ownership stake. When equity is given away, the founders ownership share is reduced and they may no longer have majority control over their company.
Realistically, you should expect to give away between 10% and 25% at this point. This round is all about getting the necessary funding to build your product, to figure out your product-market fit, and to search for that scalable growth channel.
Conventionally, the general guiding principle for a startup is that when giving equity to investors in exchange for their money in your startup, the equity should be somewhere between 10-20% of total equity. Giving more than that to an investor is too much, which is risky for your business.
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.
If you started as a solo-founder and have made progress on the business (especially if you've already raised), you should consider a something along the line of an 80/20 split of founder shares. In fact, the range I'm seeing is anywhere from 5-20% for the 2nd co-founder.
How Much Equity Should be Given Away in a Seed Round? A general rule of thumb is giving away between 10-20% equity during a seed round. This may likely be to angel investors who are willing to put in checks right at the origin of a company during the early stages.
How Much Equity Should I Give Up in Series A? In a series A round, founders are advised to give up around 20-25% of equity to investors. These equity investments are often dependent on the kind of startup or business. Some businesses may give up more, while others must give out less equity.
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.