Sample Agreement For Future Equity

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(1) the price per preferred share to be offered for equity financing; (2) the price per preferred share to be offered for equity financing; (3) the price per share determined by a previously negotiated valuation cap (see below); or 4) the bottom of option 2 or option 3. Equity financing is defined in the SAFE as “a bona foit transaction or series of transactions with the primary purpose of raising capital, in which the company issues and sells preferred shares as a fixed valuation of the advance”. Unlike a convertible bond, there is no threshold or minimum amount for equity financing. As a start-up, you undoubtedly go through agreements with other companies, suppliers, contractors, investors and many others. A lesser-known agreement is the Simple Agreement for Future Equity (SAFE). These agreements can be important for a startup`s success, but not all SAFE agreements are the same. Once the terms have been agreed and the SAFE has been signed by both parties, the investor sends the agreed funds to the company. The company uses the funds in accordance with the applicable conditions. The investor only receives equity (safe preferred share) when an event mentioned in the SAFE agreement triggers the conversion. Unlike a convertible bond, a Simple Agreement for Future Equity (SAFE) is not remunerated, does not expire and does not set a minimum amount of funds to be borrowed for equity financing. The exact conditions of a SAFE vary.

However, the basic mechanism[1] is that the investor provides specific financing to the company when it is signed. In return, the investor will subsequently receive shares of the company related to certain contractual liquidity events. The primary trigger is usually the sale of preferred shares by the company, typically as part of a future price increase cycle. Unlike a direct share purchase, shares are not valued at the time of signing the SAFE. Instead, investors and the company negotiate the mechanism by which future shares will be issued and postpone the actual valuation. These conditions typically include an entity valuation cap and/or a discount on the valuation of the shares at the time of the triggering event. In this way, the SAFE investor is insequential in the upward trend of the company between the date of signature of the SAFE (and the financing provided) and the trigger. Participation rights are the rights of the SAFE investor to acquire more shares of the company if the company proceeds with a new funding round or funding rounds. These rights can only be exercised after the SAFE has been converted into preferred shares of the company when financing equity. For example, if you run a SAFE before financing Series A, the SAFE will be converted into preferred shares of the Series A company.

With proportional rights, the investor has the right to acquire more shares if the company besieges Series B financing at the same price and under the same conditions as Series B investors. This is one of the main features of CAFE. For the issuance of CAFEs, the company first decides on a share allocation and this share allocation is fixed. Regardless of the number of CFOs spent, CAFE holders will jointly hold this fixed allocation of shares, ensuring a solid predictable dilution for current shareholders. To understand what a SAFE is, it is important to know what it is not. It is not a debt instrument. Nor are they common shares or convertible bonds. However, SAFE`s convertible bonds are similar, as they can both provide equity to the investor in a future round of preferred shares and contain valuation caps or discounts. .

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