Simple Agreement for Future Equity Philippines

Simple Agreement for Future Equity (SAFE) is becoming more and more popular in the Philippines as a means for startups to raise capital. In this article, we will explore what a SAFE is and how it works in the Philippine context.

What is a Simple Agreement for Future Equity?

Simply put, a SAFE is a financial instrument that allows early-stage startups to raise capital without giving away equity. SAFE is a hybrid between traditional equity financing and convertible debt. With SAFE, investors provide funding to startups in exchange for the right to receive shares of the company in the future.

How Does a SAFE Work?

When a startup issues a SAFE, the investor provides capital to the business. In return, the investor receives a document that outlines the terms of their investment. The document details the agreed-upon valuation cap and discount rate, which determine how much equity the investor will receive when the company raises a round of financing in the future.

The valuation cap is the maximum valuation that the company can have when it raises its next round of financing. If the company’s valuation is higher than the cap, the investor will receive equity based on the cap’s value. The discount rate is a percentage discount on the next funding round’s valuation, which provides investors with an added incentive to invest early.

Why is SAFE Popular in the Philippines?

SAFE is gaining popularity among Philippine startups for several reasons. Firstly, it provides startups with an alternative to traditional equity financing. SAFE allows startups to raise capital without diluting their ownership and control over the business. Secondly, SAFE is faster and less expensive to implement than traditional equity financing. SAFE agreements are often less complex and involve fewer legal fees. Finally, SAFE can be a more attractive option for early-stage investors who may not want to commit to a long-term investment.

Conclusion

The Simple Agreement for Future Equity is a popular financial instrument among Philippine startups looking to raise capital. SAFE allows startups to raise funds without diluting their ownership and control over the business. Additionally, it is faster, less complex, and less expensive than traditional equity financing. While SAFE is not without its risks, it is gaining traction in the Philippine startup scene as an attractive alternative to traditional financing.