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SAFE Note

A Simple Agreement for Future Equity — a startup financing instrument that converts to equity at a future priced round, without accruing interest or setting a maturity date.

Cap Table & EquityRevenue Financing

FAQs

What is the difference between a pre-money SAFE and a post-money SAFE?

A post-money SAFE (Y Combinator standard since 2018) calculates the investor's ownership percentage at signing: investment ÷ valuation cap = ownership. This gives investors and founders certainty about dilution. A pre-money SAFE's final ownership depends on how many other SAFEs and option pool expansion are included before conversion — making dilution harder to predict.

What triggers SAFE conversion?

Standard SAFEs convert upon: an equity financing round above a minimum size (typically $1M+); a liquidity event (acquisition or IPO); or dissolution of the company. Some SAFEs also allow conversion at the investor's election after a specified period. SAFEs do not have a maturity date and don't automatically convert or default if no priced round occurs.

How does a SAFE valuation cap affect founders?

The cap limits the price at which the SAFE converts, so if a startup's Series A valuation is higher than the cap, SAFE investors convert at the cap price (getting more shares than new investors for the same dollar amount). This dilutes founders and new investors. Founders should model multiple SAFE scenarios to understand dilution before committing to a cap.

Related Terms

Convertible Note

A short-term debt instrument that converts to equity at a future funding round, typically with an interest rate, maturity date, discount, and valuation cap.

Priced Round

A funding round in which the company's value is formally determined and investors receive shares at a specific price, establishing a definitive valuation.

Cap Table

A spreadsheet or software record showing all equity ownership in a company, including shares, options, warrants, and convertible instruments.

Dilution

The reduction in existing shareholders' ownership percentage caused by the issuance of new shares to investors, employees, or through conversion of instruments.

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A Simple Agreement for Future Equity (SAFE) is a financing instrument developed by Y Combinator in 2013 that allows startups to raise capital from investors without immediately establishing a share price or company valuation. The investor provides cash now in exchange for the right to receive equity in a future priced funding round, typically at a discount and/or valuation cap relative to that round.

SAFEs have largely replaced convertible notes for pre-seed and seed-stage fundraising because they are simpler (no interest rate, no maturity date, no debt instrument), faster to execute (often just 2–3 pages), and lower cost (minimal legal fees). Y Combinator provides standardized SAFE templates that have become industry standard, dramatically reducing negotiation.

The two key economic terms in a SAFE are: the Valuation Cap — the maximum company valuation at which the SAFE converts to equity (protecting early investors from excessive dilution if the company's valuation skyrockets); and the Discount Rate — typically 10–20%, allowing SAFE holders to convert at a lower price than the priced round investors pay.

At conversion (triggered by a priced equity round, typically Series A), the SAFE converts to preferred stock at whichever provides more shares: the cap or the discount. Post-Money SAFEs (the current Y Combinator standard) calculate the ownership percentage at signing based on the cap — giving investors certainty about their minimum ownership before the priced round dilutes them.

SAFEs are not debt — they appear as neither debt nor equity on the balance sheet until conversion (typically classified as a liability or mezzanine equity). This means they don't accrue interest and have no default risk, though they do create dilution at conversion that founders must model carefully.