SAFE: Discount, no Valuation Cap (US) by Y Combinator
THIS INSTRUMENT AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED IN THIS SAFE AND UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM.
SAFE (Simple Agreement for Future Equity)
THIS CERTIFIES THAT in exchange for the payment by [investor name] (the “Investor”) of [purchase amount] (the “Purchase Amount”) on or about [effective date], a [company state] corporation (the “Company”), issues to the Investor the right to certain shares of the Company’s Capital Stock, subject to the terms described below.
This Safe is one of the forms available at http://ycombinator.com/documents and the Company and the Investor agree that neither one has modified the form, except to fill in blanks and bracketed terms.
The “Discount Rate” is [discount rate]%.
See Section 2 for certain additional defined terms.
Events
(a) Equity Financing. If there is an Equity Financing before the termination of this Safe, on the initial closing of such Equity Financing, this Safe will automatically convert into the number of shares of Safe Preferred Stock equal to the Purchase Amount divided by the Discount Price.
In connection with the automatic conversion of this Safe into shares of Safe Preferred Stock, the Investor will execute and deliver to the Company all of the transaction documents related to the Equity Financing; provided, that such documents (i) are the same documents to be entered into with the purchasers of Standard Preferred Stock, with appropriate variations for the Safe Preferred Stock if applicable, and (ii) have customary exceptions to any drag-along applicable to the Investor, including (without limitation) limited representations, warranties, liability and indemnification obligations for the Investor.
(b) Liquidity Event. If there is a Liquidity Event before the termination of this Safe, the Investor will automatically be entitled (subject to the liquidation priority set forth in Section 1(d) below) to receive a portion of Proceeds, due and payable to the Investor immediately prior to, or concurrent with, the consummation of such Liquidity Event, equal to the greater of (i) the Purchase Amount (the “Cash-Out Amount”) or (ii) the amount payable on the number of shares of Common Stock equal to the Purchase Amount divided by the Liquidity Price (the “Conversion Amount”). If any of the Company’s securityholders are given a choice as to the form and amount of Proceeds to be received in a Liquidity Event, the Investor will be given the same choice, provided that the Investor may not choose to receive a form of consideration that the Investor would be ineligible to receive as a result of the Investor’s failure to satisfy any requirement or limitation generally applicable to the Company’s securityholders, or under any applicable laws.
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About this template
What is this template?
This document is a convertible security that lacks a valuation cap but includes a Discount Rate for future share conversion. It is not a debt instrument and does not accrue interest or have a maturity date.
When should you use it?
Use this template when an investor agrees to fund a startup in exchange for a discount on future equity prices without fixing a maximum company valuation. Use the SAFE: Valuation Cap, no Discount template if the parties prefer a price ceiling instead of a percentage reduction.
What's inside
| Clause | Name | What it does |
|---|---|---|
| 1(a) | Equity Financing | Automatically converts the Purchase Amount into Safe Preferred Stock at the Discount Price upon the closing of an Equity Financing. |
| 1(b) | Liquidity Event | Entitles the Investor to receive the greater of the Purchase Amount or a Conversion Amount during a Change of Control or IPO. |
| 1(c) | Dissolution Event | Grants the Investor the right to receive the Cash-Out Amount immediately prior to a voluntary termination of operations or liquidation. |
| 1(d) | Liquidation Priority | Establishes that the Safe is junior to indebtedness, on par with other Safes, and senior to Common Stock. |
| 1(e) | Termination | Terminates the instrument automatically upon the issuance of Capital Stock or payment of amounts due under liquidity or dissolution clauses. |
| 5(a) | Amendment and Waiver | Requires written consent from the Company and a majority-in-interest of similar Safe holders to modify provisions other than the Purchase Amount. |
| 5(f) | Governing Law | Subjects the agreement to the laws of the [governing law state] without regard to conflicts of law provisions. |
Who it's for
- a US corporation seeking early-stage seed funding through future equity obligations
- an accredited investor providing capital in exchange for a discounted share price in future rounds
- startups utilizing the standardized Y Combinator investment framework for deferred valuation financing
How long it runs and how it's signed
Law it's drafted under
United States note
This version is drafted for US law generally. Contract, employment and consumer rules vary by state — for example on non-competes and at-will employment. Tell GitLaw which state applies and it adjusts the draft.
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