SAFE Agreement Preparation: Innovative Financing Instrument for Startups
In the modern startup ecosystem, speed and flexibility are crucial, especially when raising capital in the early stages. The SAFE (Simple Agreement for Future Equity) is an investment instrument created by Y Combinator that is now widely used globally, including in Georgia. It is an agreement between an investor and a company that grants the investor the right to receive equity in the company in the future, upon the occurrence of a specific event (such as the next round of financing or the sale of the company). Preparation of a SAFE agreement requires specific legal knowledge, as it must comply with both international standards and Georgian legislation. This instrument allows startups to avoid the complexity of immediately determining the company's valuation and to obtain necessary capital quickly.
Adapting the SAFE agreement to local regulations in Georgia is critically important to avoid misunderstandings and legal risks in the future. Legal.ge offers access to qualified lawyers who will help you manage this process smoothly and professionally.
What Does SAFE Agreement Preparation Cover?
Preparing a SAFE is not just about filling out a template; it is a complex process that requires attention to detail and balancing the interests of the parties. The service includes the following aspects:
- Determining the Valuation Cap: This is the maximum valuation at which the SAFE will convert into equity. A lawyer will help formulate this clause correctly so that the founders' interests are not harmed.
- Setting the Discount Rate: Determining the percentage discount for the investor when purchasing shares in the future round.
- Defining Conversion Triggers: Precise definition of events (e.g., Equity Financing, Liquidity Event, Dissolution) that trigger the conversion of the SAFE into shares.
- Pro-Rata Rights: Regulating the investor's right to participate in subsequent rounds to maintain their percentage of ownership.
- Compliance with Georgian Law: Adapting the SAFE to the "Law of Georgia on Entrepreneurs" and the Civil Code to ensure it is an enforceable document.
- Negotiation Support: Communicating with investors and agreeing on contract terms in favor of the client.
Common Scenarios When You Need This Service
A SAFE agreement is most often used by early-stage startups. Here are some common situations:
- Friends & Family Round: When founders receive the first small funding from close acquaintances and want to formalize the relationship legally without excessive bureaucracy.
- Angel Investor Entry: When a private investor puts money into an idea or prototype, but accurate company valuation is difficult or impossible at this stage.
- Pre-Seed Funding: When a startup needs to cover operational costs before launching the product on the market and does not want to spend time on complex shareholder agreements.
- Bridge Round: When a company needs additional capital in the period between major investment rounds.
- Participation in an Accelerator: International or local accelerators often use SAFEs or similar instruments for investment.
Georgian Legal Framework and SAFE
The term "SAFE" does not appear directly in Georgian legislation, but its content is fully compatible with Georgian law. The main regulations are based on the Civil Code of Georgia, which recognizes the principle of freedom of contract. This means that parties can enter into any transaction that does not contradict the law.
The new Law of Georgia on Entrepreneurs significantly simplifies the use of such instruments. The law provides for concepts of convertible loans and options, which are used for structuring SAFEs. It is also important to consider the Tax Code of Georgia so that receiving investment is not considered taxable income before conversion. In many cases, a SAFE in Georgia is structured as a conditional obligation or a specific form of convertible loan, where interest does not accrue, and the debt grows into equity.
Steps in the Service Process
Working with a specialist through the Legal.ge platform involves the following stages:
- Consultation and Structuring: The lawyer understands your startup's needs, the type of investor, and the desired terms (Cap, Discount).
- Drafting: A preliminary version of the SAFE agreement is drawn up, adapted to Georgian reality and your interests.
- Review and Adjustment: Going through the document with the investor. The lawyer will help you argue and defend your positions during negotiations.
- Finalization: Preparing the final version of the agreement for signing and, if necessary, preparing corporate documents (meeting minutes).
- Execution Support: Legal assistance at the moment of conversion regarding share registration and making changes to the registry.
Why Choose a Specialist on Legal.ge?
Legal.ge is the leading platform in Georgia that connects you with verified lawyers experienced in startup law. Specialists on our platform have deep knowledge of both international venture deals and the nuances of local legislation. A SAFE agreement is not a standard document that is safe to simply "download" from the internet; an incorrectly drafted document can cause you to lose control of your company in the future. On Legal.ge, you will find professionals who ensure the protection of your interests and help you raise investment safely.
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