SAFE (Simple Agreement for Future Equity)

A contract that gives an investor the right to receive shares in the future, at a price set by a formula, rather than issuing shares immediately. It is not debt and carries no interest or maturity date.

Example

An investor puts in 25,000 under a SAFE with a 5,000,000 cap; they receive no shares until the next priced round, at which point the cap and any discount determine how many they get.

Important

A signed SAFE is not stock. No shares exist until a triggering event, most often the next priced financing round, actually occurs.

Related terms

• Valuation Cap — The maximum company valuation a SAFE or convertible note's conversion price can be based on, protecting the early investor from paying a later round's higher price.
• Convertible Note — A short-term debt instrument that converts into equity at a future financing round, carrying interest and a maturity date, unlike a SAFE.
• Pre-Money Valuation — A company's agreed value immediately before a financing round's new money is added.
• Post-Money Valuation — A company's agreed value immediately after a financing round's new money has been added, equal to the total resulting share count multiplied by the round's price per share.

Lessons that explain it

• What the cap table tells you that the founders did not — A cap table reveals founder motivation, past decisions and future obstacles. Low founder ownership, dead equity, unconverted instruments and messy structures are signals worth reading before investing. (10 min)
• Ask what the bridge is a bridge to — A bridge round is short-term funding to reach a milestone or a larger round. Whether it is a sign of strength or of trouble depends on what specifically it is meant to reach, and whether anyone new is willing to fund it. (11 min)
• A SAFE is a promise of future shares, and post-money SAFEs stack on the founders — A SAFE gives an investor the right to shares at a future priced round, usually at a valuation cap. With post-money SAFEs, each additional SAFE dilutes the founders rather than earlier SAFE holders. (12 min)
• Convertibles trade speed and low cost for an unsettled price — SAFEs and notes close quickly and cheaply but defer the valuation and the governance. Priced rounds cost more and take longer, and they settle ownership, rights and price now. (11 min)
• The cap table in the deck must match the legal records — Cap table verification reconciles the spreadsheet with the share register, board approvals, option grants and outstanding convertibles, so investors know exactly what they own after the round. (11 min)
• A SAFE is a promise of a share, not a share — Most angel checks do not buy stock on the day they are written. They buy a contractual right to receive stock later, at a price a formula computes - and almost nobody reads the formula closely enough to know what it will say. (10 min)

All 578 terms in the Investing glossary