One important thing to note is the level of preference. While 1x (i.e. a return on initial investment) is quite common, the liquidation preference for higher multiplexes (for example. B, preference for 4 times the initial investment) can have a significant negative effect on the value of other investors` shares. Regardless of the fundamental need to trust each other, the founders should have a very clear understanding of what it takes to change the shareholder contract and the structure of the shares in the future. As the middle track of the „anti-dilution clause,” you should emphasize what is called a „semi-tricchet.” In this scenario, the external investor would buy additional shares on a weighted formula generally closer to the actual share market price. The exact conditions of a SAFE vary. However, the basic mechanics are that the investor makes available to the company a certain amount of financing at the time of signing. In return, the investor will later receive shares in the company in connection with specific contractual liquidity events.
The main trigger is usually the sale of preferred shares by the company, usually as part of a future fundraising cycle. Unlike direct equity acquisition, shares are not valued at the time of SAFE signing. Instead, investors and the company negotiate the mechanism with which future shares will be issued and defer actual valuation. These conditions generally include an entity valuation cap and/or a discount on the valuation of the shares at the time of triggering. In this way, the SAFE investor participates above the company between the signing of safe (and the financing provided) and the triggering event. If the company seeks new financing or makes shares or options available to employees in the future, the company will have new shareholders. Therefore, the shareholders` pact should include clauses relating to the obligation for new shareholders to comply with the shareholders` agreement and how it is respected. It is very common in start-ups to force investors to invest in capital on different company-sized stones. The tranches are generally related to product development, revenue targets or other operational indicators. During the conclusion of an investment agreement, you can use a model for the investment agreement for preferred shares to integrate several closing tranches, which allows you to obtain more investment income during the business.
Collecting money and dividing equity are serious problems, and while it`s hard to spend valuable money for lawyers, playing DIY Attorney could lead to costly mistakes that you`ll have to make in the future. Find a start-up lawyer who will help you with reasonable fixed fees, or you agree to a cap or alternative payment structures. On the other hand, if your investor receives preferred shares, the investor will likely exercise a disproportionate degree of control and receive a greater share of the turnover than you would otherwise think if you only compared the number of shares each party held. This is because preferred shares work like your shares under a totally separate set of rules (which is defined in investment documents). Investors are usually minority shareholders of the company, but they are responsible for financing the company. Therefore, to protect the minority of investors, some decisions generally require a predetermined qualified majority. Let`s go back to our co-founders, Tom and Sarah. Tom`s father is a good friend of a retired entrepreneur. He believes in Tom`s product and wants to support his startup, but will be less interested in the return on his investment over a fairly short period of time.
On the other hand, Sarah has been in contact with a VC, also interested in investing in her startup. Typically, a venture capitalist already has an exit scenario in mind: invest, relaunch business in 5 years – 10 years maximum – and end up selling s