Instruments
SAFE
Also called Simple Agreement for Future Equity
A short agreement in which you pay cash now for shares issued later, at a price set by a future priced round — with no interest, no maturity date and no repayment.
In plain English
A SAFE is not a loan and it is not, on the day you sign it, equity. It is a promise: you wire money today, and when the company next sells shares at an agreed price, your money converts into shares at terms fixed in advance — usually a valuation cap, a discount, or both. Y Combinator published the first version in 2013 to replace the convertible note, and the format spread because it removed the two features founders disliked most: an interest rate and a maturity date.
Removing the maturity date is the substantive change. A convertible note that matures is a debt that must be repaid, extended or renegotiated, which hands the noteholder a lever. A SAFE has no such moment. If the company never raises a priced round, a SAFE can sit on the cap table indefinitely, converting only on an exit or a liquidation — or never converting at all if the company simply fades. The instrument is genuinely simpler, and the simplification was paid for almost entirely by the investor.
What you negotiate is therefore narrow. There is no rate and no term to argue about; there is the cap, the discount, whether the cap is pre-money or post-money, and whatever rights you can win in a side letter. Everything else in the document is boilerplate that founders will not, and mostly should not, change.
SAFEs are standard in the United States, common across Latin America where startups incorporate a Delaware parent, and increasingly used in Asia-Pacific. They are less usual in Europe, where the UK's advance subscription agreement exists partly because a SAFE can jeopardise SEIS and EIS relief.
What it means for your cheque
The SAFE is the instrument most likely to make a small cheque disappear quietly. Because it converts only at the next priced round, a company that raises three successive SAFE rounds and then sells itself for a modest sum may pay you out on a conversion you never modelled — or leave you arguing about what the document meant. Read the conversion clause that covers a sale before conversion; the good ones give you a choice between your money back and converting at the cap.
The second effect is stacking. Founders raise on SAFEs precisely because it is easy, and easy things happen repeatedly. By the time a priced round arrives, four or five SAFEs at different caps may all convert at once, and the dilution lands on the founders and on every SAFE holder simultaneously. Ask what is already outstanding before you sign — a question that is entirely normal and that a surprising number of angels skip.
Do the arithmetic
A $25,000 SAFE at a $5m post-money cap
You invest $25,000 on a post-money SAFE with a $5m cap and no discount. Eighteen months later the company raises a priced Series Seed at a $12m pre-money valuation.
| Your investment | $25,000 |
|---|---|
| Post-money cap | $5,000,000 |
| Ownership fixed by the cap | $25,000 ÷ $5,000,000 = 0.50% |
| Priced round valuation | $12,000,000 pre-money |
| Value of your stake at conversion | roughly $60,000 — a 2.4× paper gain before the new round dilutes you |
| What you would have got with no cap | $25,000 ÷ $12m = 0.21% |
The cap did the work. Without it your money would have bought less than half as much of the company, because you would have paid the same price as investors who arrived eighteen months and one working product later.
At the table
What to negotiate
- Insist on a cap. An uncapped SAFE with only a discount gives you no protection against the company becoming expensive on the back of the traction your money paid for.
- Establish whether the cap is pre-money or post-money — the post-money version guarantees your percentage but shifts all dilution from other SAFEs onto the founders, and it is now the more common form.
- Ask for pro-rata rights in a side letter. The standard SAFE does not include them, and they are the single most valuable thing a small cheque can win.
- Read the change-of-control clause. You want the option to take the greater of your money back or your converted equity, not whichever the company prefers.
- Ask what other SAFEs are outstanding and at what caps. There is no register you can check; the founder is the only source.
Around the world
How this differs by market
The native habitat. Y Combinator's post-money template is the de facto standard and most US seed lawyers will not redraft it.
LATAMWidely used, almost always at the Delaware or Cayman parent rather than the local operating company. Check which entity you are actually investing in.
EULess common. UK investors seeking SEIS/EIS relief generally use an advance subscription agreement instead, because a SAFE can fail the relief conditions.
APACCommon in Singapore and Australia; convertible notes remain more usual in Japan and Korea.
SAFE: common questions
Is a SAFE debt?
What happens to my SAFE if the company is acquired before it converts?
Can a SAFE expire?
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