Securities & instruments
What is SAFE?
Simple Agreement for Future Equity - a short instrument that converts into stock at your next priced round, without debt or interest.
A SAFE (created by Y Combinator in 2013) is a pre-priced equity agreement that converts into preferred stock at the next priced round. Unlike a convertible note, a SAFE isn't debt - there's no maturity date, no interest, no obligation to repay. SAFEs convert at the better-for-investor of (a) the valuation cap or (b) a discount to the round price. The 2018 post-money SAFE update made ownership percentages fixed at signing - friendlier to investors, more dilutive to founders.
Example
- $500K SAFE at $10M post-money cap. At Series A priced at $30M pre, the cap path wins - the SAFE converts to 5% (=500K/10M), more shares than the discount path would give.