What does a SAFE note cost? This is a question often asked by startup companies seeking capital for their business. Let’s explore this question and review some general information about SAFE notes and how they work.
How Much Does a SAFE Note Cost?
A SAFE note, which stands for “simple agreement for future equity”, is a legally binding contract in which an investor agrees to purchase shares in a company some time in the future for an agreed upon price.
SAFE notes are considered a type of convertible security because eventually the note will convert to equity in a company. This type of note is very popular with new startup companies that need to secure investors but due to their age, there is very little financial data to assign value to the company.
When using a SAFE note, a company can postpone its valuation until a later date when more data is available. SAFE notes are less complex than other financial options, and they protect both startup companies and investors by covering potential future events like changes in control, company dissolution, and bankruptcy.
Startup companies understand the importance of SAFE notes so it common for these entities to hire an attorney to help draft the SAFE note to ensure they are written correctly and include all necessary information.
Based on ContractsCounsel’s marketplace data, the average cost of a project involving a SAFE note is $557.17.
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What’s Included in a SAFE Note?
SAFE notes are one of the least complex convertible notes and are usually less than five pages long and easy to comprehend. Even though these contracts are fairly simple, they must include a few key elements.
- Discounts. Some SAFE notes include discounts on future converted equity. The discount typically ranges from 10%-30%. Investors who benefit from this feature will be able to purchase shares at discount in the future.
- Valuation Caps. Valuation caps establish the highest price that can be set when figuring the conversion price. This allows early investors to purchase shares at a less expensive rate than new investors.
- Most-Favored Nation Provisions. Under this provision, the first investor must be notified of all subsequent investors. If the first investor believes that a newer investor is benefiting from more favorable terms, they can ask for those same terms to be applied to their SAFE note.
- Pro Rata Rights. Sometimes called participation rights, this provision allows investors to invest extra fund to keep their ownership percentage during future equity financing.
Types of SAFE Notes
The three different types of SAFE notes include:
- Valuation Cap, No Discount. This is the most commonly used option, and it allows investors to convert their SAFE note at the lower of the priced valuation cap.
- Discount, No Valuation Cap. Using this type of SAFE note, investors can convert their notes into shares at a discounted rate.
- Most Favored Nation, No Valuation Cap, No Discount. This note allows investors to adapt new terms for their SAFE notes if they think that newer investors were offered better terms. This SAFE note, however, does not contain a valuation cap or discount.
If you aren’t sure which type of SAFE note is best for your company and your investor, it is recommended that you consult with an attorney. A startup lawyer who has experience drafting and reviewing SAFE notes will know exactly which type of SAFE note is best to achieve the financial goals of your company.
Examples of SAFE Note Projects
SAFE Note Drafting Services
Even though SAFE notes are relatively simple contracts, they are very important and could possibly control a large sum of money. Startups and any other companies who use SAFE notes should seek out a lawyer who offers drafting services to help draft a legally binding and complete SAFE note.
A lawyer will first meet with the company owner to obtain some information about the company, the financial goals, and the possible investors. Using this information, the lawyer will select which type of SAFE note best suits the needs of the company and investor and draft a legally binding contract.
A lawyer who is familiar with SAFE notes will know what provisions need to be included and will ensure the SAFE note abides by all applicable laws and restrictions.
SAFE Note Review Services
In some cases, a company may already have a SAFE note, but they may have some questions or want to know if the note they are using is the best possible option for their business.
These companies should find a business lawyer who offers review services. Instead of drafting a document from scratch, a lawyer can review an already existing contract to ensure it is up to date. The lawyer will go over all the provisions, recommend edits or additions, and explain any terms that the company owners may not understand.
SAFE Note Drafting Cost
The biggest factor that affects what a lawyer charges for drafting a SAFE note is the amount of time they spend on the task. If drafting includes several meetings, a lot of communications, and revisions, the legal fees will be more.
ContractsCounsel’s marketplace data shows the SAFE note drafting costs are $575 across all states and industries.
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SAFE Note Review Cost
If a company hires a lawyer to review a SAFE note, they will still incur legal fees for the lawyer’s time, but it will typically be less than drafting fees.
ContractsCounsel’s marketplace data shows the average SAFE note review costs are $499 across all states and industries.
How Do Lawyers Charge for SAFE Notes?
The two most common ways that lawyers charge for their time are hourly rates or flat fee rates.
Hourly Rates for SAFE Notes
When a lawyer uses an hourly rate fee structure, they set an hourly rate for their time and then charge a client each hour spent working on a project or case. The lawyer can also bill for any of their employee’s time spent on the project like associate lawyers or paralegals.
ContractsCounsel’s marketplace data shows the average hourly rate for a business lawyer ranges from $250 - $400 per hour.
Flat Fee Rates for SAFE Notes
When using a flat fee rate structure, instead of billing hourly, an attorney quotes the client a flat fee rate. If the client agrees to the price, they will pay the lawyer up front to begin work and the lawyer will complete the job.
It is important to note that flat fee rates usually only cover specific tasks like drafting documents and review. If the client wishes to have consultations, communications, or ongoing representation, the lawyer may charge more.
ContractsCounsel’s marketplace data shows the average flat fee rate for a SAFE note is $557.17.
Get Help with a SAFE Note
Do you need help with a SAFE note project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from business lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.
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