ContractsCounsel Logo

Simple Agreement for Future Equity

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 9,865 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Types of Contracts Simple Agreement for Future Equity

Jump to Section

What Is a Simple Agreement for Future Equity?

A Simple Agreement for Future Equity (SAFE) is an investment structure, formalized through a financing contract, that allows early-stage startups to invest in themselves by raising capital through a process called seed financing rounds.

It provides investors the right to purchase a specified number of shares in the future from a company, at an agreed-upon price. This price is usually at the same valuation as other investors participating in the SAFE.

The term of the agreement is usually set at no more than seven years and generally includes a 1x return on investment if investors follow through with their commitment to becoming shareholders of record after a three-year holding period.

A SAFE is most commonly offered as part of a convertible note, or SAFE note — a short-term bank loan with an attached conversion option. This type of agreement is commonly referred to as an equity agreement and are formalized through an equity purchase agreement, or contract, that can include an equity commitment letter as well as an investor rights agreement.

Equity agreements protect both parties in a deal of this nature. SAFEs can be used by companies seeking growth capital from angel investors or venture capitalists as part of seed financing rounds.

Here is an article explaining more about a simple agreement for future equity.

What’s Included in a Simple Agreement for Future Equity?

The key terms of a SAFE include the investment amount, the valuation cap, and the conversion discount.

Investment Amount

The investment amount is the amount of money that the investor is investing in the company. Investors are attracted to companies with revenue and growth potential. If you can show investors that you have proof that customers are willing to pay for your product, they will feel more confident investing in you.

Demonstrate traction through metrics like daily active users, monthly recurring revenue (MRR), or sales pipeline. The investment amount is the total amount a startup receives from investors at one time. This figure often has multiple components such as:

  • Equity. Equity refers to ownership in a company
  • Convertible Debt. Convertible debt refers to funds received by a company that must be paid back with interest before equity financing can be raised again

Valuation Cap

The valuation cap is the maximum value of the company that the investor is entitled to purchase shares. This could be a lower value than the pre-money valuation of the company. The valuation cap may be set by either party; however, it is often set by investors to protect themselves from overvaluation.

  • Pre-money valuation cap. This is calculated by multiplying the pre-money valuation by an agreed-upon multiplier (1x, 1.25x, 1.5x).
  • Post-money valuation cap. This is calculated by multiplying the post-money (including preferred shares) by an agreed-upon multiplier (1x, 1.25x, 1.5x). For example, A company has been valued at $1 million pre-money and $4 million post-money with a 1x multiplier for preferred shareholders. The investor would then have a right to purchase $3 million worth of shares at $4 million post-money ($4-$1).

Conversion Discount

The conversion discount is the percentage discount that the investor receives on the shares that they purchase. For example, if an investor purchases 100,000 shares at $1.00 per share and their investment has a 5% conversion discount, then they’d receive 95,000 of those shares at $0.95 per share. In this case, they would own 95,000 shares and still have 5,000 left to convert.

Here is an article about what startups should know about a SAFE agreement.

ContractsCounsel Simple Agreement for Future Equity Image

Image via Pexels by Essow

Types of Simple Agreements for Future Equity

Valuation cap, no discount.

The most common type of SAFE is the valuation cap, no discount SAFE. This type of SAFE does not provide the investor with a discount on the shares that they purchase.

Valuation cap, with discount.

Another type of SAFE is the valuation cap, with discount SAFE. This type of SAFE provides the investor with a discount on the shares that they purchase. The discount is usually between 10% and 20%.

No valuation cap, with discount.

The third type of SAFE is the no valuation cap, with discount SAFE. This type of SAFE does not have a valuation cap but does provide the investor with a discount on the shares that they purchase. The discount is usually between 10% and 20%.

No valuation cap, no discount.

The fourth and final type of SAFE is the no valuation cap, no discount SAFE. This type of SAFE does not have a valuation cap and does not provide the investor with a discount on the shares that they purchase.

Here is an article outlining what a SAFE is.

Meet some lawyers on our platform

Zachary J.

301 projects on CC
View Profile

Benjamin E.

98 projects on CC
View Profile

James H.

10 projects on CC
View Profile

Gregory B.

163 projects on CC
View Profile

What Is the Purpose of a Simple Agreement for Future Equity?

A SAFE is an agreement between an investor and a company that allows the investor to purchase shares in the company at a future date. The agreement is called SAFE because it is a simple agreement that does not have the same terms and conditions as a traditional investment agreement.A SAFE allows a company to raise money from investors without having to go through the traditional equity financing process. This can be a helpful tool for companies that are not ready to go through the equity financing process or for companies that want to raise money quickly.

Here is an article outlining five key things you should know about a SAFE agreement.

Are SAFEs Equity or Debt?

SAFEs are structured with a company's equity as the underlying asset. This means that SAFEs are considered to be equity instruments rather than debt instruments. This is because the equity agreement does not require the company to pay back the investment, with interest, as a debt instrument would.

Here is an article about equity investments vs. convertible debt instruments.

How Does a Simple Agreement for Future Equity Work?

A company will issue a SAFE to an investor in exchange for an agreed-upon price. The SAFE will have a valuation cap and a conversion discount. The valuation cap is the maximum amount of money that the investor can pay for the shares. The conversion discount is the percentage discount that the investor will receive on the shares.The investor will be able to purchase the shares at the valuation cap price at a later date. The shares will convert into equity at a later date, usually when the company raises money through a Series A financing round.

Here is an article outlining key terms and explaining how SAFE agreements work.

Advantages and Challenges of Using a Simple Agreement for Future Equity

One of the main advantages of using a SAFE is that it is a quick and easy way to raise money. SAFEs can be issued in a matter of days, whereas a traditional equity financing round can take weeks or even months to complete.Another advantage of using a SAFE is that it can help a company to avoid some of the costly and time-consuming aspects of the equity financing process, such as hiring a financial advisor or going through a due diligence process.One of the challenges of using a SAFE is that it can be difficult to predict how much money a company will raise. This is because the valuation cap is not set in stone and can change over time.Another challenge of using a SAFE is that it can delay the equity financing process. This is because the investor will not be able to convert the SAFE into equity until a later date, usually when the company raises money through a Series A financing round.

Here is an article outlining the pros and cons of SAFE agreements.

Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Simple Agreement for Future Equity Lawyers

Ada A. on ContractsCounsel
View Ada
5.0 (1)
Member Since:
December 17, 2023

Ada A.

Attorney
Free Consultation
Kennesaw, GA
5 Yrs Experience
Licensed in GA
Atlanta John Marshall Law School

Litigation and Discovery Management; Drafting and Filing of Pleadings, Motions and Briefs In Support; Preparation and Closing of Residential and Commercial Real Estate Sales and Purchase Transactions; Handling of Quiet Title Actions; Preparation and Filing of Probate Letters of Administration and Caveat Emptors; Review of Real Estate Documents and Settlement Negotiation.

Moshe G. on ContractsCounsel
View Moshe
Member Since:
December 11, 2023

Moshe G.

Director corporate and M&A
Free Consultation
Miami
12 Yrs Experience
Licensed in NY
Ono Academic College (Israel)

Motivated and self-starting Corporate and Commercial Counsel with over 12 years of experience in providing strategic legal solutions. Exceptional analytical and negotiation skills, focusing on Cyber Security, Finance, and Software. Proven track record of success in handling complex M&A matters. Expertly led negotiations and full five M&A transactions from start to finish (over $100M), resulting in successful integration including raising capital on Reg. A and Reg. D exemptions. Drafted, reviewed and negotiated commercial agreements including, Restructure Agreements Partnership Agreements, Asset Purchase Agreements, Stock Purchase Agreements, Restructure Agreements, Loan conversion Agreements, Debt Conversion Agreements. Provided business and capital strategy, such as restructuring of companies, due diligence, and SEC filings. Proven expertise in M&A and equity debt finance, with a track record of handling diverse clients. Provided strategic guidance on corporate governance, compliance, fiduciary duties, and ethical issues

Alexis L. on ContractsCounsel
View Alexis
Member Since:
December 12, 2023

Alexis L.

Attorney at Law
Free Consultation
Sault Ste. Marie, Michigan
22 Yrs Experience
Licensed in MA, MI
Suffolk University Law School

I am an attorney in Michigan. I attended Boston College for my undergraduate degree and Suffolk University Law School for my law degree. I have been practicing law for over 20 years.

Brian S. on ContractsCounsel
View Brian
Member Since:
December 15, 2023

Brian S.

Corporate Attorney
Free Consultation
Arizona, United States
23 Yrs Experience
Licensed in AZ, CA, DC, TX
South Texas College of Law Houston

I am a corporate lawyer with over 15 years of experience in litigation and in advising companies on a variety of legal issues, including mergers and acquisitions, securities regulations, and contract negotiations. I have a deep understanding of the technology industry and have represented numerous tech companies in my career.

Misi A. on ContractsCounsel
View Misi
Member Since:
December 20, 2023

Misi A.

Senior Counsel
Free Consultation
Inver Grove Heights
17 Yrs Experience
Licensed in MN
Mitchell Hamline College of Law

As a Senior Legal Professional, I have 16+ years experience with extensive background in commercial transactions and as a corporate generalist. I am well versed in contracts lifecycle, risk assessment, compliance, and healthcare regulations. My competencies extend to contract management and detailed project management skills. I have leveraged my legal contracts expertise to mitigate organizational risk, reduce costs, and drive multi-million-dollar revenue increases.

Karen C. on ContractsCounsel
View Karen
Member Since:
December 28, 2023

Karen C.

attorney and client relations
Free Consultation
Denver, CO
26 Yrs Experience
Licensed in MI
Chicago-Kent College of Law

I have approximately 15 years of attorney practice in IL and MI, doing both transactional and litigation work. I am currently licensed in MI and will be taking the CO bar in February. I am open to discussing paralegal or law clerk positions as I've not practiced law full-time since 2015. I worked as a residential realtor from 2015 until I moved to CO in 2021. I took the UBE in July 2023. I am qualified to become licensed in Utah, New Mexico, Oklahoma and Indiana. I missed the mark for CO by 5 points. I should be licensed to practice law in CO by April 2024.

Find the best lawyer for your project

Browse Lawyers Now

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Financial lawyers by top cities
See All Financial Lawyers
Simple Agreement for Future Equity lawyers by city
See All Simple Agreement for Future Equity Lawyers
related contracts
See More Contracts
other helpful articles

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city