SAFE Template for an F&F Round

An article we liked from Thought Leader José Ancer of Silicon Hills Lawyer:

A Friends & Family (F&F) SAFE Template

TL;DR: An uncapped, discounted SAFE with a special (not conventional) “Super MFN” provision that allows your F&F investors to get a discounted (from your seed round) valuation cap is the best and fairest structure for most friends and family rounds, but none of the public SAFE templates provide for this concept.

Uncapped SAFEs are typically designed to provide a discount only on a future equity round (not future convertible round), which means the discount won’t apply if the round after your F&F is another convertible round. Use an F&F SAFE instead to ensure your F&F investors get a fair deal, but you avoid the downsides of setting a valuation too early.

For true seed rounds, convertible notes and SAFEs (preferably pre-money, and not post-money, SAFEs) are both viable options, along with equity.

However, for friends and family (F&F) rounds – the first and usually “friendliest” money in the door – there are very good reasons to utilize a SAFE. First, your friends and family are unlikely to be insistent on significant investor protections (like debt treatment), and so they are likely to accept whatever reasonable instrument you ask them to sign. Second, because your F&F round occurs very early in the company’s history, it may be outstanding and unconverted for a long time; which makes having a maturity date of a convertible note more risky.

The problem is that all the SAFE templates currently out there aren’t really well-structured for an F&F round.

Valuation Cap SAFEs – In the case of SAFEs with valuation caps (the most common), an F&F round often occurs so early in the company’s life that setting a valuation is fraught with excessive risk. If you set it too high, you can create unrealistic expectations, and your first true professional round (seed) may end up being a “down round.” If you set it too low (often the case), it can...