SAFE (Simple Agreement for Future Equity) Term Sheet

Simple Agreement for Future Equity (SAFE) Term Sheets are an increasingly popular mechanism for startups to raise capital without the complexities of traditional equity financing. SAFEs offer a streamlined, flexible, and founder-friendly option that can be converted into equity at a later date, typically during a subsequent financing round.

If you wish to learn more about SAFEs, check our article Simple Agreement for Future Equity (SAFE): An Overview

This article breaks down the essential components of a SAFE Term Sheet, making it easier for investors and founders to navigate its terms and implications.

Key Components of a SAFE Term Sheet:

• Investment Amount: Specifies the total amount of capital provided by the investor.
• Valuation Cap: Sets the maximum company valuation at which the investment converts into equity, protecting the investor from excessive dilution.
• Discount Rate: Offers a percentage reduction on the price per share at the next equity financing round, giving the investor an early-bird advantage.
• Conversion Trigger: Defines the events that lead to the conversion of the SAFE into equity, such as the next qualifying funding round or an acquisition.
• Pro Rata Rights: Grants the investor the right to maintain their ownership percentage in future financing rounds.

This template serves as a foundational document for structuring a SAFE agreement, helping both founders and investors align on key terms and expectations.

SAFE Term Sheet