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Continuous Agreement for Future Equity
Reimagining the SAFE for ownership economy
Download the CAFE template
Content
The CAFE
What is the CAFE?
Download legal template of the CAFE?
What problem does the CAFE solve?
Key characteristics of the CAFE?
Benefits of the CAFE?
Key differences between CAFE and SAFE?
For investors
Why is the CAFE good for investors?
How to invest in a company’s CAFE?
Type of shares a CAFE convert to?
When will a CAFE convert to equity?
Can I sell a CAFE before conversion?
When can I sell a CAFE?
Do CAFE all have the same price?
How is the price of a CAFE determined?
Does the CAFE provide voting rights?
Where is my CAFE recorded?
Can the equity allocation be changed?
Can I convert a SAFE into a CAFE?
For founders
Why is the CAFE good for founders?
Can I use the CAFE in my country?
Exemptions compatible with the CAFE?
Non-accredited US investors participation?
CAFE compatibility with VC financing?
CAFE compatibility with Angel investing?
Shareholders dilution with CAFE issuance?
Can the CAFE replace stock options?
How to start issuing CAFEs?
Where can people buy & earn my CAFEs?
Can the CAFE offering be paused?
How to manage my CAFE holders?
Is ther a legal template for CAFE?
Should I hire a lawyer to use the CAFE?
For stakeholders
Why is the CAFE good for stakeholders?
I have no money, can I earn CAFEs?
Can I earn CAFEs from any country?

The CAFE, or Continuous Agreement for Future Equity, is the result of years of experience from investors, lawyers and, of course, founders reflecting on today’s financing methods and looking to create a better way to fundraise that would be beneficial for investors, entrepreneurs and stakeholders at large. The CAFE has been thought with the following objectives in mind: give more control to founders, more liquidity to investors and more access to stakeholders.

The CAFE
What is the CAFE?

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.

Where can I read the legal template of the CAFE?

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.

What problem does the CAFE solve?

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.

What are the key characteristics of the CAFE?

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.

What are the benefits of the CAFE?

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

Traditional Equity Offering
CAFE Offering
Rights
Incremental dilution. Every new round of financing makes you lose long-term control over the destiny of your company in the form of relinquishing governance and control rights.
Fixed. Your CAFE offering has a fixed dilution, no matter how much capital you end up raising. On top, shares issued on conversion of a CAFE by default do not require relinquishing governance and control rights. You stay in control.
Management Focus
On fundraising. Fundraising is a full-time job and distracts you from growing your business.
On the business. Once launched, qualified investors can invest at any single time without you being involved in the granular details of the process.
Stakeholders Incentivization
Manual. With traditional equity offerings, you usually create a stock option pool for employees, consultants or advisors but it’s near impossible to scale.
Automated. A CAFE offering gives you the ability to create an automated and scalable stakeholder incentivization plan specific to your business
Investors Liquidity
Friction. Unless you are a large company with lawyers, access to secondary markets, and an experienced team, it is challenging to enable liquidity for stakeholders and investors prior to an exit or IPO.
Easier. A CAFE offering makes it easier to orchestrate the liquidity of your stakeholders, investors and yourself as secondary trading can happen compliantly on decentralized AMMs.
Typical Participants
Professional investors. VC and business angels.
Professional investors & everybody else. Stakeholders, Seed & Pre-seed VCs, business angels & LPs.
What are the key differences between a CAFE and a SAFE?

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.

SAFE
CAFE
Fundraising
One off. Each SAFE issuance is a one-off financing event with its own negotiation phase, its own terms and a fixed amount of capital committed.
Continuous. A CAFE offering is on a “set it and forget it” model. Once launched, qualified investors can invest on their own at any single time.
Price terms
Negotiated. The valuation cap, the discount and pro-rata rights are subject to negotiation with every investor which creates friction in the fundraising process.
Automated and non-negotiable. The price of a CAFE is a function of the number of CAFE purchased (the amount invested) and the number of CAFE already issued to investors (the more CAFEs already issued, the pricier), reducing negotiation friction and freeing founder time to focus on building. See “How is the price of a CAFE determined?”.
Amount raised
Fixed. For every new SAFE issued, you raise a fixed amount of capital. To raise more capital, you need to issue more SAFE, which dilutes you more (see Dilution above).
Unlimited. For a fixed dilution (see Dilution above), you can raise an unbounded amount of capital with a CAFE offering. New CAFEs are automatically issued (at a higher price calculated automatically) whenever there is demand from investors.
Conversion trigger
Equity financing event. SAFEs typically convert into equity at the next equity financing event (a “priced round”). At that moment, the number of shares per SAFE investor is calculated using each SAFE’s valuation cap or discount based on the round’s terms. Calculating conversion can also be challenging due to different formulas for calculating valuation caps, adding confusion and complexity for founders.
Liquidity event. CAFEs convert into equity when a liquidity event happens (IPO or sale of the company). At that moment, the number of shares per CAFE holder is calculated using the target equity percentage allocation of the CAFE offering and giving every CAFE holder its pro-rata share based on their CAFE holdings. The founders and their advisors do not need to worry about complex calculations, as all logic is executed automatically.
Converts to
Preferred stocks. SAFEs convert to preferred stock, which is typically the same series of stock with the same rights as the stock being purchased by new investors in a priced round.
Non-voting preferred stocks By default, CAFEs convert to a separate series of non-voting preferred stocks with 1x non-participating liquidation preference rights.
Liquidation preference
Yes. Same terms as the new investor (usually 1x non-participating).
Yes. 1x non-participating with the same seniority level as similar SAFEs in the liquidation waterfall.
Dilution for Existing Shareholders
Incremental. Every new SAFE issued dilutes existing stockholders, often significantly, as they are the only being diluted. It’s not uncommon for founders to realize at the time of conversion that they have lost 40 to 50% of their equity after multiple rounds of SAFEs prior to a priced round.
Fixed. Your CAFE offering has a fixed equity percentage allocation so the dilution for existing shareholders is known and fixed, no matter how much capital you end up raising via your CAFE offering. You stay in control.
Dilution for SAFE holders
Pre-equity financing: No dilution. Post-Money SAFE holders (the more common form of SAFEs today) do not get diluted by new SAFE issued by the company, existing shareholders (i.e. the founders) do.
Post-equity financing: Normal dilution. Once SAFEs convert to equity, SAFE holders get diluted every time a new equity financing event occurs. The only way to not get diluted is to (i) have pro-rata rights (ii) reinvest at every round
Dilution for CAFE holders
No dilution from equity financing. A CAFE offering has a fixed target equity percentage allocation, making it naturally anti-dilutive. So, collectively, all CAFE holders will not be diluted even if the company raises more equity financing rounds.
Predictable dilution from new CAFE investors. A CAFE holder, taken individually, gets diluted each time a new CAFE is issued.
For Investors
Why is the CAFE good for investors?
  • 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.

How do I invest in a company’s CAFE?

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

What type of shares does a CAFE convert to?

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.

When will a CAFE convert to equity?

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.

Can I sell a CAFE before it converts to equity?

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.

When can I sell a CAFE?

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.

Do CAFE all have the same price?

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.

How is the price of a CAFE determined?

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.

price
Does the CAFE provide voting rights?

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

Where is my CAFE recorded?

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.

Can the company modify its equity allocation?

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).

I hold a SAFE in a company, can I convert it into a CAFE?

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.

For Founders
Why is the CAFE good for founders?

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.

My company is headquartered in country X, can I use the CAFE?

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.

What exemptions can I use with the CAFE?

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.

Can non-accredited US investors participate?

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.

Is the CAFE compatible with VC financing?

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.

Is the CAFE compatible with Angel investing?

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.

Are shareholders diluted every time a new CAFE is issued?

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.

Is the CAFE a replacement for stock options?

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.

What do I need to do to start issuing CAFEs?

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.

Where can people buy or earn CAFEs from my company?

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.

Can the CAFE offering be paused?

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

How easy is it to manage my CAFE holders?

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.

Do I need to hire a lawyer to use the CAFE?

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.

For Stakeholders
Why is the CAFE good for stakeholders?

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.

I don’t have money to invest, can I earn CAFEs?

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.

Do I need to live in the company’s country to earn CAFEs?

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.

Content
The CAFE
What is the CAFE?
Download legal template of the CAFE?
What problem does the CAFE solve?
Key characteristics of the CAFE?
Benefits of the CAFE?
Key differences between CAFE and SAFE?
For investors
Why is the CAFE good for investors?
How to invest in a company’s CAFE?
Type of shares a CAFE convert to?
When will a CAFE convert to equity?
Can I sell a CAFE before conversion?
When can I sell a CAFE?
Do CAFE all have the same price?
How is the price of a CAFE determined?
Does the CAFE provide voting rights?
Where is my CAFE recorded?
Can the equity allocation be changed?
Can I convert a SAFE into a CAFE?
For founders
Why is the CAFE good for founders?
Can I use the CAFE in my country?
Exemptions compatible with the CAFE?
Non-accredited US investors participation?
CAFE compatibility with VC financing?
CAFE compatibility with Angel investing?
Shareholders dilution with CAFE issuance?
Can the CAFE replace stock options?
How to start issuing CAFEs?
Where can people buy & earn my CAFEs?
Can the CAFE offering be paused?
How to manage my CAFE holders?
Is ther a legal template for CAFE?
Should I hire a lawyer to use the CAFE?
For stakeholders
Why is the CAFE good for stakeholders?
I have no money, can I earn CAFEs?
Can I earn CAFEs from any country?