SAFE (Simple Agreement for Future Equity)
A SAFE (Simple Agreement for Future Equity), is a contract where an investor gives capital now in exchange for future equity, typically triggered by a later priced funding round.
A SAFE is a funding agreement where an investor gives capital to a startup today in exchange for the right to receive equity later. Unlike a loan, it carries no interest, no maturity date, and no obligation to repay. The equity converts during a future priced round—usually with a valuation cap or discount as incentive.
Created by Y Combinator in 2013, the SAFE simplifies early-stage investing. It removes legal complexity, speeds up fundraising, and avoids the risks and pressure of debt. For founders, it offers flexibility. For investors, it offers upside—without needing to value the company right away.
How a SAFE works in startup rounds
A startup raises $250K using a SAFE with a $4M valuation cap. Six months later, it closes a seed round at $8M. The SAFE converts into equity based on the cap—meaning those early investors get double the share price compared to the new investors.
In another case, the SAFE includes a discount instead of a cap—say 20%. When the priced round closes, the SAFE holders get equity at 20% below the new investor price. The trigger is the next qualifying financing event. Until then, the investment sits as a right to future shares.
What people often get wrong about SAFEs
Some founders assume SAFEs don’t dilute. They do—just later. Others raise multiple SAFEs without tracking cumulative dilution, which creates confusion during the priced round. On the investor side, some expect control rights or repayment, when SAFEs don’t offer either.
Another issue: not planning for conversion mechanics. Without aligned triggers, definitions, and pro-rata rights, things can get messy fast. Clarity today avoids legal battles tomorrow.
Fast, flexible—but not frictionless
A SAFE is not just a “simple” agreement—it’s a tool. Used well, it accelerates funding and preserves optionality. Used blindly, it crowds the cap table and muddies equity expectations. For both founders and investors, the key is knowing that speed helps—but structure holds. And in startup funding, what happens later depends on what you set up now.
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