The Washington Term Sheet — Simple Agreement for Future Equity (SAFE) is a legal document commonly used by startups and early-stage companies to raise funds from investors. It serves as a simplified alternative to traditional equity financing, providing a framework for future equity investments while deferring valuation discussions until a later financing round. The Washington Term Sheet — Simple Agreement for Future Equity (SAFE) operates based on the principle of a convertible note, but without the debt component. Instead, it allows investors to purchase equity in the company in the future, contingent upon specific trigger events outlined in the agreement. This structure offers flexibility and streamlines the fundraising process, as it does not involve setting an immediate valuation. There are several variations of the Washington Term Sheet — Simple Agreement for Future Equity (SAFE) that cater to different investment scenarios. Some notable types include: 1. Valuation Cap SAFE: This version incorporates a predetermined cap on the company's valuation, safeguarding investors from excessive dilution in case of a significant increase in valuation during subsequent funding rounds. 2. Discount SAFE: This type provides investors with the opportunity to secure equity at a discounted rate in comparison to future investors participating in subsequent financing rounds. 3. Post-Money SAFE: In this variant, the investor's equity stake is calculated based on the company's valuation following the completion of a specific funding round. It ensures transparency by explicitly detailing the investor's ownership percentage. 4. Prorate Rights SAFE: This type of SAFE grants investors the right to participate in future funding rounds to maintain their ownership percentage, preserving their investment stake as the company grows. The Washington Term Sheet — Simple Agreement for Future Equity (SAFE) enables startups to attract early capital from investors without engaging in intricate valuation negotiations. However, it is vital for both parties to thoroughly understand the terms and implications of the agreement, seeking legal advice when necessary, to ensure a fair and mutually beneficial arrangement.