A CAFE (pronounced /ka.fe/) is a Continuous Agreement for Future Equity. It allows investors to make cash investments in a company at any single time, but get company stock at a later date, in connection with a specific event. A CAFE is not a debt instrument, but is intended to be an alternative to convertible notes and SAFEs that is beneficial for both companies and investors.

Here is a simple template we’ve created as an example form of CAFE. Keep in mind, each Company may want to customize and amend the form of CAFE based on legal feedback, and using this template is not a requirement to conduct a CAFE offering. Also note, these are just templates and are not intended to constitute legal advice. You will still need to work with counsel or choose to forego working with counsel yourself.

The CAFE enables you to financially align your stakeholders to the success of your company. The digital economy has radically changed the nature of the relationship between customers and corporations. Individuals have switched from being passive consumers to being an essential force in creating value, either by their actual work (Airbnb, Uber, Apple's App Store, Amazon Marketplace...) or through their data (Facebook, Google...).

For that reason, financially aligning stakeholders to the success of the company is now the strongest competitive advantage that a company can build. Yet, there is no easy solution to do that today (see the letters sent by Airbnb and Uber to the SEC asking to let them give equity to their hosts and drivers respectively).

The CAFE has been created with the objective to turn equity into a company’s most powerful tool to engage with its community. On the one hand, the CAFE allows for high-resolution fundraising at scale, enabling anyone in the world who believes in a company (and who are not restricted by applicable laws) to invest in it, at any single time. On the other hand, the CAFE allows companies to better reward key stakeholders (users, customers, partners, drivers, hosts…) and incentivize them to their financial success.

More specifically, the CAFE addresses the expectations we gathered from hundreds of discussions with founders, investors and stakeholders:

• Founders want more long-term control of their company,

• Stakeholders want access to the financial upside of the companies they love and use,

• Investors want increased liquidity on their investments.

The CAFE has been designed to be an improvement over the SAFE. Like the SAFE, it allows for high-resolution financing but it has other key characteristics. Most notably, subject to applicable law (which may require the observation of holding periods or other securities law compliance requirements, depending on jurisdiction), it is designed to achieve three essential features:

• Accessible to Qualifying Investors and Stakeholders. Anyone in the world who supports the company’s product or mission and qualifies to participate under applicable law is able to buy or earn CAFE, anytime, easily and online.

• Digital. The CAFE makes companies’ equity programmable. Using the CAFE, founders can create automated and scalable stakeholder incentivization plans to let their key stakeholders earn CAFE according to the rules they set. Software is finally eating equity.

• More Liquid. We created the CAFE as a standard digital security. As such, subject to applicable law, it has the potential to leverage decentralized AMMs as well as securities exchange platforms to enable easy trading of CAFE.

The CAFE has many benefits over traditional equity offering while remaining compatible with traditional equity financings:

As there are different types of SAFE, we’ll use a YC SAFE POST with valuation cap / no discount for the comparison. Regarding the CAFE, we’ll use the default CAFE template that Fairmint has made available.

• Liquidity. First and foremost, the CAFE gives investors a clearer path to liquidity. Unlike traditional equity which is notoriously illiquid, the CAFE being a standardized digital security, its liquidity can be more easily orchestrated in an efficient and compliant way by leveraging the decentralized finance infrastructure and AMMs in particular.

• Access. The CAFE opens a new market for investors, especially angel investors, as they can now permissionlessly invest in growth oriented companies at stages that they could not have access to before, mainly Series A/B/C stages.

• Upside. The CAFE offering being naturally anti-dilutive, CAFE holders are more likely to capture their fair upside than if they were holding other equity instruments.

Directly from the company’s app or website. The CAFE being a fully digital security, companies can issue them directly from their website.

By default, the CAFE converts to preferred non-voting shares who benefit from a 1x liquidation preference and that shares the same seniority as most SAFEs. However, each Company may have different considerations or other securities that may impact how its particular CAFE is treated.

If you are not familiar with the term liquidation preference, it gives investors the option to get their initial investment back (if at all possible) in case the equity conversion would result in them getting less than their initial investment. It’s a very standard practice to give investors some downside protection.

By default, the CAFE converts to equity when a triggering event occurs: IPO of the company, sale of the company or bankruptcy filing. When a triggering event occurs, CAFE investors will collectively receive the equity allocation decided by the company at the start when they decided to start issuing CAFEs. It is important to note that the equity allocation is being calculated at the triggering event which means that the equity allocation decided by the company is not diluted by subsequent financing rounds.

Yes, subject to any applicable laws. As CAFEs are standard fully digital securities registered on the Ethereum blockchain, they are more easily tradable as they can leverage the decentralized finance infrastructure (like AMMs) in a compliant way. By default, CAFEs issued under a Reg D 506(c) exemption have a 1 year lockup period. CAFEs issued under a Reg A+ do not have this lockup restriction. Please reach out to your legal counsel to learn more about the different types of securities offering you can use to issue CAFEs.

By default, CAFEs issued under a Reg D 506(c) exemption have a 1 year lockup reflecting minimum holding periods under certain U.S. securities laws. However, please note that the lockup period can and will vary depending on the company issuing the CAFE and what laws it must comply with. CAFEs issued under Reg A+ exemption for example would likely not have this lockup restriction. Please reach out to your legal counsel to learn more about the different types of securities offering you can use to issue CAFEs.

No. The price of the CAFE rises with the number of CAFEs issued, similar to how valuation caps may arise over time with convertible instruments like SAFEs. So, the earlier you invest, the greater number of shares your CAFE will ultimately convert to due to a lower effective price per share.

This mechanism helps the company break the sort of deadlock that happens when investors all wait to see who else is going to invest. With the CAFE, investors can always wait, but the price increases every time someone invests and the larger the investment, the larger the price increase.

The price of a CAFE is proportional to the number of CAFE already issued. The price of a CAFE is a function of the number of CAFE already issued to investors. When the CAFE issuance begins, the price per CAFE is fixed until a certain amount of CAFE is sold. The initial price is determined by the valuation floor of the CAFE.

Example: a CAFE with an equity allocation target of 10% and a company valuation floor of $1M (set by the company) will start at a fixed price of $1 until the total amount invested reaches $100,000. Once the CAFE issuance reaches the valuation floor, the price of CAFE starts to increase proportionally to the number of CAFE issued to investors.

No. By default, the CAFE does not provide its holder any governance rights.

Proof of participation in a CAFE is recorded on the Ethereum blockchain. That’s one of the great things about the CAFE: it is a fully digital security and uses the Ethereum blockchain as an open & global system of record. So, the “fairtable” (this is what we call the capitalization table of the CAFE holders) of the company is always available.

However, we also recognize that privacy is important. As such, while CAFE records are stored on chain, personally identifiable information is not required to be held on chain and can be stored by the Company. Fairmint’s technology is able to reference hashes of certain data to ensure compliance with applicable KYC/AML and securities laws.

Yes, but by default, only to the advantage of CAFE holders. In the default form of CAFE, at any time, the company can decide to increase the equity allocation of the CAFE offering, but it can never decrease it. Also, at any time, current shareholders can work with the company and their legal counsel to create a conversion plan to convert part or all of their equity into CAFE which will also increase the equity allocated to the CAFE offering (see below).

Potentially. Many standard SAFEs are compatible with converting to CAFEs as they are similar security instruments. However, each Company's SAFE will need to be reviewed, and there may be tax consequences for converting investors that they should review with their own advisors.

Here are five reasons why, as a founder, the CAFE is good for your company:

• Control & predictability. As a founder, you decide on a fixed equity allocation for your CAFE offering. You know that, no matter how much you end up fundraising or incentivizing, the dilution will be fixed. You stay in control.

• Inclusive to Stakeholders. As a founder, you create your own stakeholder incentivization plan(s) to financially align the stakeholders that are key to your business. Boost acquisition, increase loyalty, attract top talents… with your equity.

• Hands off fundraising. Fundraising with the CAFE is a “set it and forget it” process, once set up, anyone in the world who qualifies under applicable laws and supports your product and mission is able to invest at any single time, without you being in the loop.

• Evolutive & future proof. You never know what the future holds for your company. The CAFE helps you keep all your options open: if you don’t want to sell and if an IPO is not the plan, you can orchestrate liquidity for you, your investors and even organize your exit to community.

The CAFE is available today for US companies. We are working with lawyers all over the world to translate the CAFE template in other jurisdictions. Please get in touch with us if you’d like to enquire about the availability of the CAFE in your company’s jurisdiction.

The CAFE can be issued under different exemptions, although we expect that most CAFE issuers in the U.S. will use Reg D 506(c) of Regulation D of the Securities Act (which allows for general solicitation so long as accredited investors are appropriately verified) for US investors and Regulation S of the Securities Act for non-US investors. This is non-exhaustive and other exemptions like Reg A or Reg CF could be used as well.

By default, certain non-accredited US investors can earn CAFE from the company as service providers, and we expect that other retail investors will eventually be able to compliantly buy CAFE on the secondary market once the initial 1 year lockup period has expired and CAFE tokens are available on compliant platforms and decentralized AMMs.

Yes. The CAFE is not only compatible but complementary with VC financing (past and/or future). VCs appreciate the CAFE as it enables the company to strongly align its most valuable stakeholders to the financial success of the company. Large VCs who have ownership targets and care about board seats will prefer priced rounds over CAFE investing, but they see the CAFE as they see stock options pools for employees: An accretive mechanism that helps get everyone aligned to the success of the company.

Yes. The CAFE is the perfect instrument for angel investors. Angel investors usually do not aim at getting board seats or having a say in the governance but they want to be sure they can capture the upside associated with being an early investor. Plus, many Angel investors would love but can’t participate in fundraising rounds once the company starts being successful. The CAFE lets angel investors invest in companies at any single stage while protecting their upside potential and giving them a much clearer path to liquidity.

No. That’s one of the key characteristics of the CAFE. To issue CAFEs, the company initially decides on an equity allocation and this equity allocation is fixed. No matter how many CAFEs are issued, the CAFE holders will collectively hold this fixed equity allocation, guaranteeing a fixed predictable dilution for current shareholders.

That being said, it’s important to note that, as the equity allocation is expressed in equity percentage (vs a fixed number of shares), it is anti-dilutive: it remains fixed even if the company decides to raise more funds in the future, thus protecting the CAFE holders collectively from future dilution but diluting existing shareholders by virtue of the fact that it can’t be diluted.

Potentially. It obviously depends on the company specifics and applicable law, but in theory, companies may decide to grant employees CAFEs instead of stock options to better align their interests with the Company’s long term success. It can have many advantages for both you and your employees. Come and talk to us to learn more about it.

It’s an easy, 3 steps process. You only have to do it once, and then it can work for years without any overhead needed. Set it and forget it.

1. Decide on a name and an equity allocation. How much are you hoping to raise? How much equity do you want to allocate for your stakeholders? Do you want your employees to be incentivized with CAFE too? Would your investors like to convert their SAFE to CAFE? What would your ideal stakeholder plan look like? Answering these questions will help you come up with a proper allocation. It does not need to be perfect: you will always be able to increase it in the future.

2. Draft your Continuous Securities Offering. We provide a template of the CAFE in many different jurisdictions and are happy to provide references to securities lawyers with whom we’re working and who are already familiar with the CAFE. And if we don’t yet have a template of the CAFE for your jurisdiction, we’ll work with you to create it and launch the CAFE in your country! Of course, you are free to work with any counsel and documents you choose to draft as well, and Fairmint does not receive compensation or other benefits for connecting you with professional service providers.

3. Start engaging your stakeholders and issuing CAFEs. Obviously, given the continuous nature of the CAFE, we strongly recommend that you use a dedicated software platform to make the process as easy and frictionless as possible. We invite you to consider Fairmint for that matter. Fairmint gives you the ability to start issuing CAFEs directly from your own website or app (i.e. invest.yourdomain.co), without any intermediaries.

Directly from your app or website. The CAFE being a fully digital security, you can issue them directly from your website. You can completely automate the process and remove yourself as founder from the granular parts of the raise process once you have finished structuring your raise by using a dedicated software platform like Fairmint (see https://invest.fairmint.co for example). The main benefit is that you don’t need to direct users to an external portal or to associate your brand with another service.

Yes. You have the ability to pause the offering when you please, preventing new CAFEs to be issued.

Very easy. You can make the choice to manage them manually, but we strongly recommend that you consider a specialized software platform (like Fairmint) to help you manage all your stakeholders.

Yes. You can download the legal template for the CAFE (for a US corporation) here. We’ll be adding more legal templates for other jurisdictions over time. Please get in touch with us if you are a lawyer interested in porting the CAFE to your local jurisdiction. Feel free also to get in touch with us if you are a company looking for a particular jurisdiction as we will port the CAFE on a demand-driven basis. Keep in mind, these are just templates and are not intended to constitute legal advice. You will still need to work with counsel or choose to forego working with counsel yourself.

We strongly recommend it. While the sample CAFE template will not be suitable for all financing situations, the terms are intended to be balanced, taking into account both the company’s and the investors’ interests. As with the original safe, there are still trade-offs between simplicity and comprehensiveness, so while not every edge case is addressed, we believe the CAFE covers the most pertinent and common issues. However, if you have not negotiated these terms before or are not familiar with fundraising generally, you should consult with counsel to make sure you understand key terms before issuing CAFEs.

Access to ownership. As a company’s user, partner, customer… you contribute to create value to the company yet, until now, you never had the possibility to access the financial upside of the company. Now you can.

Possibly. If the company has a stakeholder incentivization plan set up, you can earn CAFEs by contributing to the company. How exactly? This will depend on the company, its ecosystem and its objectives.

No. No matter where you live, you should be able to contribute to the company and earn CAFEs but restrictions do exist. For example, if you live in a country that has some current embargo or business restrictions with the country the company is headquartered in, you’re likely not eligible.