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Simple Agreement for Future Equity
I need a Simple Agreement for Future Equity for an early-stage startup investment, where the investor provides a cash investment in exchange for the right to receive equity at a future date, contingent on a qualifying financing event. The agreement should include a valuation cap, discount rate, and specify the terms under which the equity conversion will occur.
What is a Simple Agreement for Future Equity?
A Simple Agreement for Future Equity (SAFE) lets startups raise quick funding by promising investors future shares instead of immediate equity. It works like a convertible note but without debt or maturity dates, making it popular among Nigerian tech startups seeking early-stage capital.
Under Nigerian corporate law, SAFEs give investors the right to convert their investment into equity when specific triggers occur, usually during a priced funding round or company sale. This approach helps founders maintain control while offering investors potential upside, though it's crucial to align the agreement with Companies and Allied Matters Act (CAMA) requirements.
When should you use a Simple Agreement for Future Equity?
Use a Simple Agreement for Future Equity when your Nigerian startup needs quick capital but wants to delay complex equity negotiations. This tool works especially well for tech companies raising pre-seed funding from angel investors who understand startup dynamics and are comfortable with future equity conversion.
SAFEs make the most sense during early fundraising rounds when your company's valuation remains uncertain. They help you avoid the administrative burden of issuing shares immediately while staying compliant with CAMA regulations. Many Lagos-based fintech and e-commerce startups use SAFEs to secure initial funding from local and international investors before their Series A rounds.
What are the different types of Simple Agreement for Future Equity?
- Pre-Money SAFE: Sets valuation before new investment, popular among Lagos tech startups for clearer terms
- Post-Money SAFE: Determines company value after including the new investment, preferred by international investors
- Valuation Cap SAFE: Limits the conversion price, protecting early investors during future funding rounds
- Discount SAFE: Offers percentage discount on future equity price, common in Nigerian fintech ventures
- MFN (Most Favored Nation) SAFE: Automatically matches better terms given to later investors, appealing to angel investors
Who should typically use a Simple Agreement for Future Equity?
- Startup Founders: Draft and offer SAFEs to raise early-stage capital while maintaining control of their companies
- Angel Investors: Review and sign SAFEs to secure future equity rights in promising Nigerian startups
- Corporate Lawyers: Structure and customize SAFE agreements to comply with Nigerian corporate law
- Investment Advisors: Guide both founders and investors on SAFE terms and valuation caps
- Company Secretaries: Maintain records of SAFEs and monitor conversion triggers under CAMA requirements
How do you write a Simple Agreement for Future Equity?
- Company Details: Gather your CAC registration documents, shareholding structure, and current capitalization table
- Investment Terms: Define the investment amount, valuation cap, and any discount rates
- Conversion Triggers: Specify events that will convert the SAFE into equity, like future funding rounds
- Investor Information: Collect investor's legal name, contact details, and investment entity structure
- Board Approval: Document board resolution authorizing the SAFE issuance under Nigerian law
- Compliance Check: Verify alignment with CAMA requirements and Securities Exchange Commission guidelines
What should be included in a Simple Agreement for Future Equity?
- Investment Terms: Clear statement of investment amount and method of payment in Nigerian Naira
- Conversion Mechanism: Detailed conditions triggering equity conversion and calculation method
- Valuation Cap: Maximum company valuation for conversion purposes
- Representations: Company's legal status under CAMA and authority to issue future shares
- Rights Assignment: Terms governing transfer or sale of SAFE rights
- Dispute Resolution: Nigerian jurisdiction and arbitration procedures
- Amendment Process: Rules for modifying agreement terms with mutual consent
What's the difference between a Simple Agreement for Future Equity and an Equity Agreement?
Simple Agreement for Future Equity (SAFE) differs significantly from an Equity Agreement in several key aspects under Nigerian law. While both involve company ownership, they serve distinct purposes and situations.
- Timing of Ownership: SAFEs promise future equity rights when specific events occur, while Equity Agreements transfer immediate ownership shares
- Valuation Requirements: SAFEs can be issued without determining company valuation, making them ideal for early-stage startups. Equity Agreements require a current company valuation
- Legal Complexity: SAFEs use simpler documentation and fewer CAMA compliance requirements than full Equity Agreements
- Shareholder Rights: SAFE holders don't get voting or dividend rights until conversion, unlike immediate rights in Equity Agreements
- Flexibility: SAFEs offer more adaptable terms for future funding rounds, while Equity Agreements lock in specific ownership structures
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