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Simple Agreement For Future Equity Term Sheet for the United States

Simple Agreement For Future Equity Term Sheet Template for United States

A Simple Agreement for Future Equity (SAFE) Term Sheet is a preliminary document outlining the key terms for a funding instrument commonly used in early-stage startup financing in the United States. It sets forth the basic terms under which an investor provides capital to a company in exchange for the right to receive equity at a future date, typically upon a qualifying financing event. The document is governed by U.S. federal and state securities laws and provides a streamlined alternative to convertible notes.

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What is a Simple Agreement For Future Equity Term Sheet?

The Simple Agreement For Future Equity Term Sheet emerged as a streamlined funding document for early-stage companies in the United States, pioneered by Y Combinator in 2013. This document serves as a preliminary framework for negotiations between startups and investors, outlining the basic terms for investment without immediately issuing equity or debt. Unlike convertible notes, SAFEs don't accrue interest or have maturity dates, making them particularly attractive for seed-stage fundraising. The term sheet typically includes valuation caps, discount rates, and conversion mechanisms, setting the stage for the final SAFE agreement.

What sections should be included in a Simple Agreement For Future Equity Term Sheet?

1. Parties: Identification of the company and investor(s)

2. Background: Context of the agreement and purpose of the SAFE investment

3. Definitions: Key terms used throughout the agreement including 'Equity Financing', 'Liquidity Event', 'Dissolution Event'

4. Investment Amount: Specified amount of investment and payment terms

5. Events: Treatment of investment in case of equity financing, liquidity event, or dissolution event

6. Conversion Terms: Terms governing conversion of the investment into equity

What sections are optional to include in a Simple Agreement For Future Equity Term Sheet?

1. MFN Amendment Provision: Most Favored Nation clause, used when offering different terms to future investors

2. Pro-rata Rights: Rights to participate in future financing rounds

3. Board Seat Rights: Rights to board representation upon conversion

What schedules should be included in a Simple Agreement For Future Equity Term Sheet?

1. Capitalization Table: Current cap table showing ownership structure

2. Form of Investment Instrument: Template of the actual SAFE instrument to be used

3. Disclosure Schedule: Material disclosures about company status and risks

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

United States

Publisher

Ƶ

Cost

Free to use
Clauses
























Industries

Securities Act of 1933: Federal law requiring registration of securities offerings and mandating disclosure requirements, unless an exemption applies. Critical for SAFE agreements as they are considered securities.

Securities Exchange Act of 1934: Federal law governing secondary market trading and establishing SEC oversight. Relevant for future trading considerations and antifraud provisions.

Regulation D: SEC rules providing exemptions from securities registration requirements, particularly Rule 506 which is commonly used for private placements including SAFEs.

Regulation Crowdfunding: Federal regulations governing crowdfunding offerings, relevant if the SAFE is offered through crowdfunding platforms.

Blue Sky Laws: State-specific securities laws that require registration and govern offerings within each state's jurisdiction.

Delaware General Corporation Law: Comprehensive state corporate law framework, particularly relevant if the company is Delaware-incorporated, governing corporate structure and securities issuance.

Investment Company Act of 1940: Federal law regulating investment companies, requiring consideration of exemptions for certain investment structures.

Internal Revenue Code: Federal tax law governing the tax treatment of SAFE instruments and their conversion to equity.

State Contract Laws: State-specific laws governing contract formation, enforcement, and interpretation applicable to SAFE agreements.

Uniform Commercial Code: Standardized state laws governing commercial transactions, relevant for contract interpretation and enforcement.

Employment Laws: Federal and state laws governing employment relationships, relevant if SAFEs are offered as part of employee compensation.

Accredited Investor Rules: SEC regulations defining qualified investors who can participate in certain private offerings, crucial for SAFE investor qualification.

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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