Published on April 12th, 2021 | by Newt Rayburn0
Simple Agreement For Future Equity Means
As soon as the terms are agreed and the SAFE is signed by both parties, the investor sends the agreed funds to the company. The entity uses the funds in accordance with the applicable conditions. The investor receives equity (SAFE preferred shares) only when an event mentioned in the SAFE agreement triggers the conversion. A safe is simple and short. It saves you the trouble of negotiating and agreeing on the amount of equity financing, which is often quite difficult to reconcile between the investor and the business at an early stage of the business. Our first safe was a “pre-money” safe, because at the time of its launch, startups collected smaller sums of money before collecting a funding cycle (typically a Preferred Stock Round Series). The safe was a quick and simple way to get the first money into the business, and the concept was that safe owners were only early investors in this future price cycle. But fundraising, staged early on, grew in the years following the introduction of the initial safe, and now startups are raising far more money than the first “seeds” funding cycle. While safes are used for these seed rounds, these towers are really better regarded as totally separate financing, instead of turning “bridges” into subsequent price cycles. Pro rata rights are the SAFE investor`s rights to acquire more shares in the company when the company begins a new series of financing cycles or cycles. These rights are exercised only when SAFE has been converted into preferred shares of the company as part of the equity financing.
If you run z.B a SAFE before the financing of Series A, the SAFE will be converted into preferential shares of the company in Serie A. With proportional rights, the investor has the right to acquire more shares if the company accepts Series B financing at the same price and conditions as Series B investors. Equity financing is defined in SAFE as “bona fide transaction or series of transactions with the main purpose of raising capital, pursuan weens which the Company issues and sells Shares Preference at a fixed pre-money valuation.”