Simple Agreement for Future Equity - The fastest way for startups to raise money without the complexity of traditional fundraising.
An investor pays a specific amount (the "Purchase Amount") to your startup. This money goes directly to the company to fund operations.
In return, the company promises that the investor will get shares in the future - when a qualifying event happens (like a Series A round).
When the company raises a priced round (Equity Financing), the SAFE automatically converts into preferred stock at a price favorable to the early investor.
Think of it like this: A SAFE is like a gift card for future stock. You pay now, and when the company sets a price for its stock (in a future funding round), your gift card automatically redeems for shares - usually at a better price than what new investors pay.
Close with each investor as soon as they're ready. No need to coordinate all investors for a single closing date. An investor can sign and wire money the same day.
It's a single, short document. Only one thing to negotiate: the valuation cap. No interest rates, no maturity dates, no complex clauses.
Minimal legal fees because it's a standardized form. Most founders can use it with little to no lawyer involvement for the document itself.
Unlike convertible notes, a SAFE has no maturity date. There's no deadline pressure to raise another round or repay the investor.
A SAFE is an equity instrument, not debt. There are no interest payments, no accruing obligations, and no risk of default.
With the post-money SAFE, both founders and investors can instantly calculate exactly what percentage of the company has been sold.
| Feature | SAFE (Post-Money) | Convertible Note | Priced Round (Series A) |
|---|---|---|---|
| Document Complexity | Simple - 1 document | Moderate - multiple docs | Complex - many docs |
| Legal Costs | Minimal (~$0-2K) | Low-Moderate ($2-5K) | High ($10-40K+) |
| Speed to Close | Days | 1-2 Weeks | Weeks to Months |
| Is It Debt? | No (equity) | Yes (debt) | No (equity) |
| Interest Rate | None | Yes (typically 2-8%) | None |
| Maturity Date | None | Yes (12-24 months) | Not applicable |
| Ownership Clarity | Immediately clear | Uncertain until conversion | Fully defined |
| Negotiation Points | 1 (valuation cap) | 3-5 terms | Many terms |
| Best For | Pre-seed / Seed | Bridge rounds | Series A and later |
The standard and most widely used version. The Valuation Cap sets a maximum company value at which the investor's money converts into shares.
How it protects the investor: If the company's valuation grows massively before the next round, the SAFE investor still converts at the capped (lower) valuation, getting more shares for their money.
Example: You invest $500K with a $5M post-money cap. The company later raises a Series A at a $50M valuation. Your SAFE converts as if the company was worth $5M, giving you 10% ownership (before Series A dilution) instead of 1%.
Key Point: Post-money cap includes ALL the SAFE money. So if you raise $1M total on SAFEs with a $5M cap, investors own 20% combined ($1M / $5M).
Instead of a cap, this SAFE gives the investor a percentage discount on the price paid by Series A investors.
The Discount Rate: Expressed as a percentage of the Series A price. A "20% discount" means the SAFE investor pays 80% of what new investors pay (Discount Rate = 80%).
Example: Series A investors pay $2.00 per share. Your 20% discount means you pay $1.60 per share. A $100K investment gets you 62,500 shares instead of 50,000.
No cap. No discount. But if the company later issues SAFEs with better terms (like a valuation cap or discount), this investor can adopt those better terms.
Think of it as: "I'll match whatever deal the next investor gets." It's a safety net for very early investors when terms are hard to establish.
Important: The MFN is a one-time amendment right. You adopt the full terms of the later SAFE - you can't cherry-pick individual provisions. If never triggered, the SAFE converts at the same price as new investors (no special treatment).
Best used when: The company is so early that setting a valuation cap is impossible. Common for the very first check into a brand-new idea.
Wires $500K to the company
$5M Post-Money Cap
Builds product, hires team
Raises at $20M pre-money
SAFE becomes preferred shares
When a SAFE converts in an Equity Financing, the investor gets the greater of two calculations:
Shares = Purchase Amount / Safe Price
Where Safe Price = Post-Money Cap / Company Capitalization
This gives the investor Safe Preferred Stock at a lower price per share.
Shares = Purchase Amount / Series A Price Per Share
The investor gets Standard Preferred Stock at the same price as new investors.
The investor automatically gets whichever option results in more shares. Usually Option A wins (the valuation cap), which is why the cap is the most important term.
This is the denominator used to calculate how many shares the SAFE converts into:
Why this matters: SAFEs don't dilute each other - they all come out of the same post-money cap. But they ARE diluted by the Series A new money and its option pool increase, just like everyone else.
The SAFE automatically converts into preferred stock. The investor gets shares based on the valuation cap vs. the round price (whichever gives more shares). This is the most common outcome.
The investor gets the greater of: (1) their money back (Purchase Amount), or (2) the share of sale proceeds they'd get if the SAFE converted to stock. SAFE holders rank on par with preferred stockholders.
Also a Liquidity Event. The SAFE converts to common stock, and the investor can eventually sell on the public market. Same payout logic as an acquisition.
The investor is entitled to get their Purchase Amount back - but only after creditors and debt holders are paid. In practice, if a startup shuts down, there's usually little money left.
The SAFE just sits there. It never expires. The company keeps operating without raising a priced round. The investor's money is at work, but there's no conversion or payout.
Priority Order in Liquidation: Creditors & Debt → SAFE Holders & Preferred Stock (same level) → Common Stockholders. SAFEs are junior to debt but senior to common stock.
Your board of directors must formally approve the issuance of SAFEs before you send any out. This is a legal requirement - don't skip it.
Know how much you want to raise and what ownership you're willing to sell. Ownership = Total Raise / Post-Money Cap. Targeting $1M raise and 15% sold? Your cap is ~$6.7M.
Close with each investor individually. They sign the SAFE, wire the money, done. You can close multiple investors over weeks or months.
Track all SAFEs carefully. Record each investor, their purchase amount, and the valuation cap. This is critical for when you raise your next round.
Use the money to build your product, grow your team, and hit milestones. The SAFEs sit quietly in the background until a triggering event.
When you raise your next round, all SAFEs automatically convert into preferred stock. The conversion happens at the initial closing - no action needed from SAFE holders.
A Pro Rata Side Letter gives a SAFE investor the right to invest in your Equity Financing (e.g., Series A) to maintain their ownership percentage.
Example: An investor owns 10% via their SAFE. When you raise a $5M Series A, they have the right to invest up to $500K (10% of the round) in the Series A to maintain their 10% stake.
Founder Warning: Be careful about giving pro rata rights to too many investors. When the Series A comes, you need to make room for new investors + existing investors with pro rata rights. Too many pro rata commitments = more dilution than expected.
Only give pro rata rights to investors who invest above a certain amount (e.g., $250K+). This is simple and limits how many investors you need to manage at Series A time.
Simplest approach, least negotiation. But may mean more dilution at Series A if everyone exercises. Trade-off: easy now, potentially complex later.
Estimate how much extra ownership you'll sell at Series A from pro rata rights, and only allocate that much. Requires planning but gives the best control.
You cannot raise more than the Post-Money Valuation Cap!
If your cap is $5M, and you raise $5M in SAFEs, investors own 100% and founders own 0%. Always raise significantly less than the cap.
| Amount Raised | SAFE Ownership | Founder Ownership |
|---|---|---|
| $500K | $500K / $5M = 10% | 90% |
| $1M | $1M / $5M = 20% | 80% |
| $2.5M | $2.5M / $5M = 50% | 50% |
| $5M | $5M / $5M = 100% | 0% |
Before issuing SAFEs, decide: "We want to raise $X and sell no more than Y%." Then set your cap accordingly: Cap = Raise / Target %.
Don't just think about the SAFE round. Model out the Series A too. SAFE dilution + Series A dilution + option pool can easily total 50%+ combined.
If you issue SAFEs at different caps, add up the ownership from each: $500K at $5.5M cap (~9%) + $500K at $8.3M cap (~6%) = 15% total.
Pro rata commitments add extra dilution at Series A. Factor this in when planning how much total dilution you'll accept.
Formal board consent (meeting or written) is legally required
Cap = Total Raise / Target Ownership %
Who gets pro rata rights? Everyone? Only large investors?
SAFEs + future Series A + option pool = total founder dilution
Record every SAFE with investor name, amount, cap, and date
Sum of all (investment / cap) across all SAFEs
Clear your option backlog before signing a Series A term sheet
Use the standard YC form as-is. Custom changes cost time & money.