SAFE

Simple Agreement for Future Equity — an investor gives money now in exchange for shares later, when a priced round happens. It is not a loan and has no interest or maturity date.

Example

$250,000 on a SAFE with a $5M valuation cap converts at the seed round into shares priced at no more than a $5M valuation.

Important

SAFEs are fast and cheap, which is why founders stack several of them — then discover at the priced round that they have given away far more than they thought. Model the conversion BEFORE you sign the next one.

Related terms

• Convertible note — A loan that converts into equity at a future priced round, usually with a discount and a valuation cap. Unlike a SAFE it carries interest and a maturity date.
• Valuation cap — The maximum valuation at which a SAFE or note converts, regardless of what the priced round is actually done at.
• Discount (on a SAFE or note) — A percentage reduction on the priced round's share price, rewarding the investor for coming in earlier.
• Priced round — A funding round where the share price is actually agreed, shares are issued immediately and a valuation is set.
• Dilution — When new shares are issued, existing shareholders own a smaller percentage of the company than before.

Lessons that explain it

• SAFEs and convertible notes — How most first money is raised now — fast, cheap, and much easier to get wrong than founders expect. (15 min)

All 176 terms in the Founder glossary