Principal (Amount invested): This is the amount of cash invested by the stakeholder for the SAFE note. In the illustrative SAFE note below, the principal is $150,000.
Issue Date: The date on the SAFE. In the illustrative SAFE note below, it is June 2, 2020.
Conversion Type (Pre-Money or Post-Money): Check out this article on how to identify whether your SAFE is pre- or post-money. YCombinator's SAFE template was pre-money from 2013 to 2018. In 2018 they introduced the new post-money SAFE. If your SAFE note says "Post-Money Valuation Cap" at the top (as shown in the illustrative SAFE note below), then it is a post-money SAFE.
ℹ️ Tip: Make sure to toggle on your SAFE to either Pre or Post Money. Failure to toggle on to the correct conversion type affects Pulley's fundraising modeler.
Valuation Cap (if applicable): This is the maximum valuation at which the SAFE note will convert into equity in the next equity financing round. In the illustrative SAFE note below, the valuation cap is $10,000,000. The valuation cap is one of the mechanisms to reward seed stage investors for taking on additional risk. Valuation caps are typically between $2 million and $20 million.
"For example, let's say a company raised a SAFE note with a $10 million valuation cap. A few years later, the company raised a Series A at a $20 million valuation. Since $20 million is greater than the $10 million valuation cap, the SAFE investors will get equity AS IF the valuation was $10 million. In this case, the valuation cap enables the SAFE investors to get more shares at a lower share price, and own a larger stake in the company than they would have without the valuation cap."
ℹ️ Tip: Remember, if your SAFE is uncapped, to toggle on uncapped in Pulley. See the toggle in Spreadsheet mode, and form and scanner mode respectively.
Pro rata (if applicable): Pro Rata rights mean that the investor has the right (but not obligation) to invest more money in the next fundraising round to maintain their ownership percentage. For Post-Money SAFEs, Pro Rata rights are typically included in a Pro Rata Side Letter. For Pre-Money SAFEs, this term is a default component of the document.
ℹ️ Tip: How to reflect Pro Rata in Pulley
If your SAFE or side letter says the following "Pro rata share for purposes of this Pro Rata Right is the ration of (x) the number of shares of Capital Stock issued from the conversion of all of the Investor's Safes with a "Post-Money Valuation Cap" to (y) the Company Capitalization".
Simply toggle Pro-Rata "on". That's it!
If your SAFE or side letter specifies the pro-rata amount (e.g. 4%).
Toggle Pro-Rata "on".
In the field Pro-Rata Ownership, write "4%".
Attachments: Please upload the Note Purchase Agreement and Form of Convertible onto Pulley to ensure all your documents are in one place.
Conversion Discount (if applicable): The discount will apply to the price per share when the SAFE note converts into equity in the next equity financing round. In the illustrative SAFE note below, the conversion discount is 20% (100%-80%). If this company raised a Series A at a price of $1 per share, the SAFE investors would get shares AS IF the share price was $0.80/share. Note: If the SAFE has both a valuation cap AND a discount, the SAFE holder will apply whichever one term results in the lower share price.
Conversion Trigger (if applicable): The minimum dollar amount of the next equity round required to trigger the conversion of the SAFEs into preferred equity. This is often between $500,000 to $3 million depending on the size of the company. Most SAFEs do not have a conversion trigger and will convert into preferred shares in the next equity round, regardless of the size of the round.
Change in Control Percent (if applicable): The percent premium that the SAFE investors get on their capital contribution if the company is sold while the SAFE is still outstanding. The standard SAFE provision is 0% (investors get their money back) but some SAFEs may have 50% (1.5x their money back) or 100% (2x their money back) premiums in the event of an early exit before the next equity financing round.
Federal Exemptions: Check with your lawyer. According to this Seed Financing Overview from Fenwick & West, the two most commonly used federal exemptions for seed financings are:
the private placement exemption provided by Section 4(a)(2) (15 U.S.C. § 77d) of the Securities Act, which exempts “transactions by an issuer not involving any public offering” and...
Rule 506(b) (17 C.F.R. § 230.506) of Regulation D, which provides a safe harbor under Section 4(a)(2) of the Securities Act
Illustrative SAFE Note
Disclaimer: We are not lawyers, and this is not legal advice. Although we try to make sure our information is accurate and useful, please consult a lawyer if you want legal advice.