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A company got an offer to invest on a SAFE w/ a Term Sheet asking for a subscription agreement. What is a subscription agreement? Are there red flags re: agreeing to something like this?

Feedback from Brian Patterson, Gunderson

J
Written by Jasmine Sunga
Updated over 5 years ago

This is not typical of a US-based fund. Subscription agreements and shareholder deeds are concepts that I usually see with European investors.  A subscription agreement is typically like a purchase agreement in that it contains a number of reps and warranties by the company about its business, assets and financials and then states any closing conditions or other terms for the investment. Having a SAFE with a subscription agreement is virtually unheard of in the US in my experience.  A share deed I think is similar to a stock certificate and is a mechanism to register the shares with the company and applicable jurisdiction - also, not typical or needed in the US.

A subscription agreement itself isn’t a harmful concept as long as the company understands that it is unusual (and probably unnecessary) for a SAFE investment.  It could be harmless but they should read it carefully to make sure there are no gotchas.

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