SAFE Note
A Simple Agreement for Future Equity that lets startups raise money without setting a valuation upfront.
A SAFE (Simple Agreement for Future Equity) is an investment contract created by Y Combinator in 2013 that has become the standard instrument for early-stage fundraising. Unlike a loan, a SAFE has no interest rate, no maturity date, and no repayment obligation. Instead, the investor's money converts into equity at a future priced round, typically at a discount or subject to a valuation cap.
SAFEs are popular because they are simple, fast to execute (often just a 5-page document), and avoid the complexity of negotiating a full term sheet. For founders, this means you can close funding in days rather than weeks. For investors, a SAFE provides the upside of equity participation without the overhead of board seats or ongoing governance.
The most common SAFE variants include post-money SAFEs (where the cap includes the SAFE itself in the ownership calculation) and pre-money SAFEs (where it does not). Post-money SAFEs have become the standard because they give investors a clearer picture of their ownership percentage at conversion.
Example
A founder raises $500K on a post-money SAFE with a $5M valuation cap. When the startup later raises a Series A at a $20M pre-money valuation, the SAFE converts at the $5M cap, giving the investor 10% ownership rather than the 2.5% they would get at the Series A price.
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