Simple Agreement for Future Equity (SAFE)

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What is it?

A Simple Agreement for Future Equity (SAFE) is a contract between an investor and a startup company used for the purposes of the startup company to raise finance. The investor provides capital to the startup company in exchange for a future right to receive shares in the company as part of the next equity round in which the company issues preferred shares, at a discounted price to the price per share of such preferred shares.

In the event that the company is unsuccessful prior to the investor receiving any shares, the investor is entitled to treat the money invested as a debt owed to the investor.

Why do you need it?

A Simple Agreement for Future Equity (SAFE) sets out how a company will receive capital from an investor in order to raise funds and, in turn, will provide the investor with the right to acquire certain shares of the company at a later date, if:

  • The company raises capital from other investors and issues preferred shares to them;
  • The company is acquired;
  • There is any change of control of the company;
  • The company goes to IPO; or
  • The company goes into dissolution, liquidation, or winding up.

It sets up the parties' rights and obligations with respect to the shares and how the shares will be acquired by the investor.

Key clauses to watch for:

When drafting a Simple Agreement for Future Equity (SAFE), it is important to focus on a number of key clauses, in particular:

  • Details of the company;
  • Details of the investor;
  • Amount of money invested into the company;
  • Date of this signed agreement; and
  • How the number of preferred shares that the investor will acquire will be determined when the next round of funding occurs.

Simple Agreement for Future Equity (SAFE) Document

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