SAFE (Simple Agreement for Future Equity) Term Sheet
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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
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