A Better SAFE template for Friends and Family Rounds

All of the major SAFE templates available online have been designed for use with professional investors, typically in seed rounds. A friends and family round is quite different from a seed round in that, because the business is so early, and the investors are generally so inexperienced (though they should still be accredited investors), that setting a reasonably accurate valuation/valuation cap is impossible; or at least inadvisable.

Given this problem, we took an old SAFE template, and made some minor tweaks to make it work better for an F&F round. Uniquely, this template has a discounted MFN-type provision that applies to a future valuation cap in a seed round. Typically the discount (often 20%) in a SAFE applies only to a future equity round. But in the vast majority of cases your round after your F&F will itself be a convertible note or SAFE. Giving your F&F investors a 20% discount on your equity round valuation could mean giving them a terrible deal for the risk they took on.

The discount in our F&F SAFE applies to a future valuation cap. So if your seed round is closed on a SAFE with a $10 million valuation cap, for example, a 20% discount F&F SAFE will allow your F&F investors to get an $8M cap. Importantly, it gives them the benefit of a discount (and thus the best deal for being the earliest money), but it delays the actual setting of a valuation until later, when professionals are around.

We’ve used this template countless times for our startup clients, and have never seen it raise problems with future investors. In fact, it prevents problems that conventional SAFEs often create when used in the wrong context.

For more details on this SAFE template, see: A Friends and Family (F&F) Safe Template.

The actual template can be downloaded: here.

Leave a Reply

Your email address will not be published. Required fields are marked *