SAFE (Simple Agreement for Future Equity)
AdvancedAlso known as: Simple Agreement for Future Equity A SAFE (Simple Agreement for Future Equity) is an agreement in which an investor gives money to a start-up in exchange for the right to receive shares in a future priced funding round, without setting a valuation at the time of investment. The SAFE was introduced by the start-up accelerator Y Combinator in 2013 as a simpler alternative to convertible notes. Unlike a convertible note, a SAFE is not debt: it has no interest rate and no maturity date. When the company later raises a priced equity round, the SAFE converts into shares, usually at a discount to the new investors' price, or at a price based on a valuation cap, whichever gives the SAFE investor more shares. For example, an investor puts 500,000 into a SAFE with a valuation cap of 8,000,000. If the company later raises money at a pre-money valuation of 20,000,000 and a price of 2.00 per share, the SAFE converts at a price based on the cap, about 0.80 per share, giving the investor 625,000 shares. SAFEs are quick and inexpensive to arrange, making them popular for early-stage fundraising, especially in the United States. Founders should track SAFEs carefully, since several outstanding SAFEs can cause more dilution than expected when they convert.
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