SAFE (Simple Agreement for Future Equity)

A SAFE, or Simple Agreement for Future Equity, is a financing instrument that lets an investor give a startup cash today in exchange for the right to receive equity later, typically when the company raises a priced round, without setting a valuation or issuing shares at the time of the SAFE itself. Y Combinator introduced the standard SAFE template in 2013, and it has since become the dominant instrument for pre-seed and seed rounds in the United States and, increasingly, in Israel.

How does a SAFE differ from a convertible note?

Unlike a convertible note, a SAFE is not debt, carries no interest rate, and has no maturity date forcing repayment or conversion by a set deadline. A SAFE typically includes a valuation cap, a discount rate, or both, which determine the price at which it converts into equity once the company closes its next priced round, giving early investors a better effective price than the new round's investors receive.