Startup Fundraising with SAFE
SAFE Template
The SAFE (Simple Agreement for Future Equity) template is a legal document used by startups to raise capital from investors in exchange for a promise of future equity. It's a streamlined way to raise money without the need for complex legal processes like determining a company's valuation upfront.
Key Components of a SAFE Template:
Investment Amount: The amount of money the investor will invest in the startup.
Valuation Cap: A maximum valuation at which the SAFE will convert into equity. This protects the investor from overpaying in future rounds.
Discount Rate: A percentage discount on the future valuation that the investor receives when the SAFE converts.
Triggering Event: The event that will trigger the conversion of the SAFE into equity, typically a qualified financing round.
Investor Rights: Any additional rights or protections granted to the investor, such as pro-rata rights to participate in future funding rounds.
Here's a basic SAFE (Simple Agreement for Future Equity) template:
Simple Agreement for Future Equity
This Simple Agreement for Future Equity (the “SAFE”) is made and entered into as of [Date] by and between [Company Name], a [State] corporation (the “Company”), and [Investor Name], a [State] [Entity Type] (the “Investor”).
1. Investment Amount. The Investor agrees to invest [Amount] in the Company in exchange for the rights granted herein.
2. Valuation Cap. The Investor’s investment will convert into equity in the Company at a pre-money valuation of no more than [Valuation Cap] (the “Valuation Cap”).
3. Discount Rate. If the Company raises a qualified financing round prior to the conversion of this SAFE (a “Qualified Financing”), the Investor’s investment will convert into equity at a discount of [Discount Rate]% to the price per share paid by investors in such Qualified Financing.
4. Qualified Financing. A “Qualified Financing” means a bona fide equity financing round of the Company where the Company issues equity securities with a price per share that is not less than [Minimum Price Per Share].
5. Conversion. The Investor’s investment will convert into equity securities of the Company upon the earlier of (a) the closing of a Qualified Financing or (b) a specified date (the “Conversion Date”).
6. Investor Rights. The Investor shall have no rights as a shareholder prior to the conversion of this SAFE. However, the Investor may have certain rights, such as information rights and pro-rata rights, as may be agreed upon by the parties.
7. Representations and Warranties.
7.1 Organization and Authority:
The Company is a [State] corporation in good standing.
The Company has the full corporate power and authority to execute and deliver this SAFE and to perform its obligations hereunder.
The execution and delivery of this SAFE have been duly authorized by all necessary corporate actions of the Company.
7.2 Capitalization:
The Company has accurately described its capitalization in the attached capitalization table.
There are no undisclosed liabilities, debts, or obligations of the Company, except as disclosed in writing to the Investor.
7.3 No Conflicts:
The execution and delivery of this SAFE will not conflict with or violate any provision of any agreement or instrument to which the Company is a party or by which it is bound.
7.4 Title to Assets:
The Company has good and marketable title to all of its assets, free and clear of all liens, encumbrances, and security interests, except as disclosed in writing to the Investor.
7.5 Financial Statements:
The Company’s financial statements, if provided, fairly present the financial condition of the Company as of their respective dates.
7.6 Authority to Conduct Business:
The Company is duly authorized to conduct business in all jurisdictions where its business is conducted.
7.7 No Material Adverse Effect:
No event has occurred or is reasonably likely to occur that could have a material adverse effect on the Company’s business, financial condition, or prospects.
8. Governing Law. This SAFE shall be governed by and construed in accordance with the laws of the State of [State].
9. Entire Agreement. This SAFE constitutes the entire agreement between the parties and supersedes all prior or contemporaneous communications, representations, or agreements, whether oral or written.
[Signatures]
Please note: This is a simplified template and may not cover all potential scenarios. It's essential to consult with an attorney to tailor the agreement to your specific needs and to ensure compliance with applicable laws and regulations.
Additional Considerations:
M&A Provisions: Consider including provisions related to mergers and acquisitions that may affect the conversion of the SAFE.
Redemption Rights: You might want to include provisions for redemption of the SAFE under certain circumstances.
Board Observer Rights: You may grant the investor observer rights to attend board meetings.
Material Adverse Effect (MAE): Define the term "material adverse effect" carefully to avoid ambiguity.
Disclosure Schedules: Use disclosure schedules to provide more detailed information about the Company's business, financial condition, and operations.
Survival Period: Determine the period during which the representations and warranties will survive after the closing of the investment.
Indemnification: Consider including provisions for indemnification in case of breaches of representations and warranties.
By carefully considering these factors and seeking legal advice, you can create a SAFE agreement that protects both the investor and the company.
How Bestar Can Help
Bestar can provide invaluable assistance when drafting and reviewing a Simple Agreement for Future Equity (SAFE) template. Here are some key ways we can help:
1. Tailoring the SAFE to Your Specific Needs
Customizing Terms: Bestar can help you customize the SAFE to fit your specific business model, risk tolerance, and investor preferences.
Addressing Unique Circumstances: We can help you address any unique legal or tax implications that may arise from your specific situation.
Negotiating Favorable Terms: Bestar can negotiate favorable terms with investors, such as valuation caps, discount rates, and investor rights.
2. Ensuring Legal Compliance
Adhering to Regulations: Bestar can ensure that the SAFE complies with all applicable laws and regulations, including securities laws and corporate law.
Mitigating Legal Risks: We can identify potential legal risks and suggest strategies to mitigate them.
Staying Updated on Legal Developments: Bestar stays updated on the latest legal developments and can advise you on how they may impact your SAFE agreement.
3. Protecting Your Interests
Investor Rights: Bestar can help you balance the interests of the investors with the needs of the company.
Exit Strategy: We can help you consider potential exit strategies and ensure that the SAFE agreement supports your long-term goals.
Future Financing Rounds: Bestar can help you structure the SAFE to facilitate future financing rounds and avoid potential conflicts.
By consulting with Bestar, you can ensure that your SAFE agreement is well-drafted, legally sound, and protects your interests.
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