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Simple Agreement for Future Equity
"I need a simple agreement for future equity with an initial investment of £10,000, convertible into equity at a 20% discount during the next funding round, with a valuation cap of £1 million, and a maturity date of 18 months from the agreement date."
What is a Simple Agreement for Future Equity?
A Simple Agreement for Future Equity (SAFE) lets startups raise money from investors without immediately setting a company valuation or issuing shares. It's a streamlined investment contract that gives investors the right to receive equity in the future, typically when the company raises its next funding round or experiences another trigger event.
In England and Wales, SAFEs offer a faster, cheaper alternative to convertible notes, with no interest rates or maturity dates to worry about. Investors get the chance to convert their investment into shares at a discounted price when the company hits specific milestones, while startups maintain flexibility and avoid complex negotiations over current valuations during early stages.
When should you use a Simple Agreement for Future Equity?
A Simple Agreement for Future Equity works best when your startup needs quick funding but isn't ready to set a firm valuation. It's particularly valuable during pre-seed or seed rounds, when traditional equity deals might be too expensive or time-consuming to arrange. Early-stage tech companies and innovative startups across England and Wales often use SAFEs to secure initial investment while keeping legal costs low.
Consider using a SAFE when you need to close individual investments quickly, maintain flexibility for future funding rounds, or attract angel investors who understand startup dynamics. It's especially useful if you're raising smaller amounts from multiple investors and want to avoid the complexity of coordinating a full equity round.
What are the different types of Simple Agreement for Future Equity?
- Standard SAFE with valuation cap: Sets a maximum company value for calculating the investor's share conversion
- Discount-only SAFE: Offers investors a percentage discount on shares during the next funding round
- MFN (Most Favoured Nation) SAFE: Automatically gives investors the best terms offered to later SAFE holders
- Basic uncapped SAFE: Simple conversion without valuation limits, popular with angel investors in early rounds
- Pre-money SAFE: Calculates ownership based on the company's value before new investment, common in UK tech startups
Who should typically use a Simple Agreement for Future Equity?
- Startup Founders: Design and offer SAFEs to raise capital quickly without immediate equity dilution or complex negotiations
- Angel Investors: Provide early-stage funding through SAFEs, gaining potential future equity at preferential terms
- Corporate Lawyers: Draft and review SAFE agreements, ensuring legal compliance and protecting both parties' interests
- Company Directors: Approve and execute SAFEs as part of the company's fundraising strategy
- Investment Platforms: Often facilitate SAFE investments, connecting startups with potential investors and standardizing terms
How do you write a Simple Agreement for Future Equity?
- Company Details: Gather full legal name, registration number, registered office address, and directors' information
- Investment Terms: Determine investment amount, valuation cap, discount rate, and conversion triggers
- Investor Information: Collect legal name, address, and investment capacity verification of all participating investors
- Corporate Approvals: Confirm board authorization and any existing shareholder agreements that might affect the SAFE
- Documentation: Use our platform to generate a legally-sound SAFE agreement, customized to your specific needs and compliant with UK law
What should be included in a Simple Agreement for Future Equity?
- Investment Terms: Clear statement of investment amount, valuation cap, and any discount rate
- Conversion Rights: Detailed trigger events and calculation method for equity conversion
- Company Details: Full legal entity information, registration numbers, and authorized signatories
- Investor Rights: Pro-rata rights, information rights, and any special privileges
- Exit Provisions: Treatment of the SAFE in case of company sale or dissolution
- Governing Law: Explicit statement of English law jurisdiction and enforcement provisions
What's the difference between a Simple Agreement for Future Equity and an Equity Agreement?
Simple Agreement for Future Equity (SAFE) differs significantly from a traditional Equity Agreement. While both involve company ownership, they serve distinct purposes and operate differently in practice.
- Timing of Ownership: SAFEs defer equity ownership until a future event, while Equity Agreements create immediate shareholding rights
- Valuation Requirements: SAFEs don't need a current company valuation, making them ideal for early-stage startups, whereas Equity Agreements require agreed-upon company valuation
- Complexity Level: SAFEs use simpler documentation and faster execution, while Equity Agreements involve more detailed terms and longer negotiations
- Shareholder Rights: SAFE holders typically have no voting or dividend rights until conversion, unlike immediate rights granted in Equity Agreements
- Flexibility: SAFEs offer more adaptable terms for future funding rounds, whereas Equity Agreements lock in specific ownership structures
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