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 preference shares, at a discounted price to the price per share of such preference 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 an unsecured debt owed to the investor.
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:
It sets up the parties' rights and obligations with respect to the shares and how the shares will be acquired by the investor. In some circumstances the investor can elect a payment instead of an issue of shares.
When drafting a Simple Agreement for Future Equity (SAFE), it is important to focus on a number of key clauses, in particular: