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The Simple Agreement for Future Equity is a neutral investment agreement for individual investors in start-up companies. It gives investors the right to certain shares of the company's capital stock, subject to specified terms. If there is an Equity Financing before the expiration or termination of the agreement, the company will automatically issue shares to the investor. If there is a Liquidity Event, the investor can choose between receiving a cash payment or shares of Ordinary Shares.
In case of a Dissolution Event, the investor will be paid an amount equal to the Purchase Amount. The agreement expires and terminates either upon the issuance of stock to the investor or the payment of amounts due. This instrument is a great way for start-ups to attract investment while providing investors with the security they need. It is important for investors to understand the terms and conditions of the agreement, including their obligations, and the conditions under which they can receive their investment back. This instrument is a great way to provide investors with a clear and concise investment agreement that protects their interests while allowing start-ups to raise the capital they need to grow.
1. Understand the Parties Involved: This document is a Simple Agreement for Future Equity (SAFE) entered into by [PARTY_1_NAME] and [PARTY_2_NAME]. [PARTY_1_NAME] is a corporation while [PARTY_2_NAME] is the investor.
2. Identify the Payment and Issuance of Shares: The investor will pay [CURRENCY]$[PURCHASE_AMOUNT] to the company on or about [CURRENT_DATE] in exchange for the right to certain shares of the company's capital stock. The number of shares issued depends on the pre-money valuation of the company. If the pre-money valuation is less than or equal to [CURRENCY]$[VALUATION_CAP], the investor will receive Standard Ordinary Shares. If the pre-money valuation is greater than [CURRENCY]$[VALUATION_CAP], the investor will receive Safe Ordinary Shares.
3. Review the Events: The agreement covers three events: Equity Financing, Liquidity Event, and Dissolution Event. If an Equity Financing occurs before the expiration or termination of the agreement, the investor will receive shares of Standard Ordinary Shares or Safe Ordinary Shares, subject to certain terms. If a Liquidity Event occurs, the investor has the option to receive a cash payment or shares of Ordinary Shares. If a Dissolution Event occurs, the company will pay an amount equal to the Purchase Amount to the investor prior to or concurrent with the consummation of the event.
4. Understand the Termination: The agreement will expire and terminate upon the issuance of stock or payment of amounts due to the investor.
5. Know the Definitions: The document contains certain defined terms, including "Change of Control," which means a transaction where a person becomes the direct or indirect owner of more than 50% of the outstanding voting securities of the company.
In summary, the SAFE document outlines the terms and conditions for an investor to purchase shares in a company. It covers different events and their corresponding outcomes, as well as the termination of the agreement. Understanding the definitions used in the document is also essential.