Downloaded Y Combinator SAFE note and need to fill it out.

Hi *****! My name is Dolan, and I’d be happy to help with this. I carefully review each question and provide responses based on my years of hands-on experience as a lawyer.

The Y Combinator SAFE note is a great starting point, and I can guide you through filling it out correctly. Since you mentioned a $4M valuation cap and a 20% discount, we’ll need to ensure those terms are properly included.

Which specific fields are you unsure about?

Got it! Let’s go through each one:

1. Purchase Amount: This is the dollar amount the investor is putting into the company through the SAFE.
2. Valuation Cap: This should reflect the $4 million cap you mentioned, ensuring their investment converts to equity at this maximum valuation.
3. Discount Rate: This is where you input the 20% discount, allowing the investor’s conversion to be at 80% of the next round’s share price if the valuation cap isn’t triggered.

Are these terms for a specific investor or multiple investors?

Yes, that’s correct. For the Purchase Amount, you’d simply write “$100,000” to reflect their investment.

For the Valuation Cap, you’d write “$4,000,000,” and for the Discount Rate, you’d input “20%.” (some people may put 0.80 here too)

There might also be a section about governing law or the jurisdiction. Have you decided which state’s laws will govern this agreement?

Delaware is the most common choice since many startups are incorporated there. If your company is incorporated elsewhere, it’s usually best to choose the state where your company is registered.

Do you know where your company is incorporated?

Exactly. Stick with Delaware law, then.

There’s another section you should double-check: the Optional Pro Rata Rights.

This gives the investor the right to maintain their ownership percentage in future funding rounds by investing additional funds. Did you discuss whether they want pro rata rights?

It depends. Pro rata rights can be valuable to investors because they allow them to maintain their stake as the company grows. For you, it’s a matter of how much you’re willing to dilute future equity.

If the investor hasn’t requested it, you can leave it out. If they bring it up later, you can negotiate and amend the SAFE if needed.

Yes, here are a few additional considerations:

1. MFN (Most Favored Nation) Clause: Some SAFEs include this clause, ensuring the investor gets better terms if another SAFE is issued on more favorable terms. If this is in the template, decide if you want to keep it.
2. Termination Events: Ensure you understand what triggers the SAFE’s conversion into equity (an equity financing event, liquidity event, or dissolution).

Have you reviewed these parts of the note?

The MFN clause is optional and designed to protect early investors. It allows them to switch to the terms of a later SAFE if it’s more favorable. If you’re confident this investor won’t ask for adjustments later, you can remove it to simplify things.

If you want to keep the MFN clause, ensure you’re comfortable potentially offering those terms to other investors later.

Do you want to include it, or leave it out?

Good call. Removing it simplifies the agreement. Just ensure the section referencing MFN clauses is struck from the SAFE template.

One last thing: confirm the investor’s legal name or entity name as it should appear in the agreement. Have you already finalized this?

Yes, include the full legal name of their LLC, exactly as it’s registered. This ensures there’s no ambiguity about who the agreement is with.

Also, make sure the investor provides their signature and date on the designated lines at the end of the SAFE. You’ll want to sign and date it on behalf of your company as well.

Have you scheduled a time for both parties to finalize and sign?

Just one last review to ensure all terms align with what you and the investor agreed on:

- Purchase amount: $100,000.
- Valuation cap: $4 million.
- Discount rate: 20%.
- No pro rata rights or MFN clause.
- Delaware law as the governing jurisdiction.

If everything looks good, you’re set to send it over for their review.

You’re very welcome! If you have any follow-up questions, feel free to reach out.

If you found this advice helpful, I’d greatly appreciate it if you could leave me a review. It helps other founders and investors find reliable legal guidance.

Anytime! Best of luck with your SAFE agreement and the investment process!