Simple Agreement For Future Equity Canada

As shown in the table above, the SAFE investor`s debt decreases with the increase in valuation before the money. The valuation target rises to $5,000,000 and predicts that, although the equity investor accepts a higher pre-money valuation, the SAFE investor will not fall under a certain claim (in this example, the new issue of 10% of the issued and outstanding shares). [4] Common Docs, NACO, called May 12, 2019, available at Despite the positive drawbacks, the founders must take into account some drawbacks. Often, creators will introduce an valuation ceiling into a SAFE and find funds until they dilute their share of participation on the basis of that assessment. It is important to remember that the valuation cap is not necessarily the valuation of increasing capital. To illustrate this, we assume that a founder raised $500,000 in seed capital through a SAFE. The SAFE conversion event is a $1 million share round (commonly known as A-round), and equity is converted either with a valuation ceiling of $10 million or with a 20% discount. If, due to a liquidity crisis or other market factors, the company is forced to raise $1 million for a valuation of $6 million, the founders will have abandoned 27% of their business compared to the 16% they would have expected for a valuation of $10 million2. It will generally be the main basis for negotiation between the investor and the company. The safe valuation ceiling sets a contractual ceiling for the pre-money valuation used to calculate the price at which an investor`s SAFE is converted into equity at the time of a future conversion event. The valuation cap allows investors to convert a lower value of the valuation ceiling or the price of subsequent financing into equity.

[8] In essence, the valuation cap ensures that the INITIAL SAFE investor gets a better price per share than a later investor. If the entity can find more money than the valuation ceiling in a later cycle of equity financing, the investor will benefit because it receives equity on the basis of the lower valuation ceiling and thus receives more shares. If the money is lower than the valuation ceiling, the investor continues to benefit from the fact that he can choose the lowest amount as the basis for calculating equity financing. As originally implemented by YCombinator, safe`s objective was to simplify the investment process in an early start-up through seed financing before the company made a Series A financing. The launch phase has often been a bridge to future financing, and SAFE has been seen as a single, contractual vehicle for issuing shares in future financing, with a potential benefit for the investor to be able to make its investments at an early stage.