SAFE

A SAFE — Simple Agreement for Future Equity — is a contract in which an investor provides capital now in exchange for the right to receive equity when a future priced round occurs. It is not a loan: there is no interest, no maturity date, and no obligation to repay.

The instrument was designed to remove the negotiation burden of an early priced round. Because there is no valuation set at signing, founders and investors defer the hardest question until a lead investor prices the company.

SAFEs are most common at pre-seed and seed, where a company has too little operating history to price credibly. Founders often raise from several investors on rolling SAFEs, closing each as commitments arrive rather than coordinating a single simultaneous close.

Conversion happens automatically at the next qualifying equity financing, applying whichever of the valuation cap or discount is more favourable to the investor.

• Valuation cap — the maximum valuation at which the SAFE converts
• Discount — a percentage reduction on the future round price
• Pre-money vs post-money — post-money SAFEs fix the investor's ownership percentage and are far less forgiving to founders
• Most favoured nation — entitles the holder to better terms offered to later SAFE investors
• Pro rata rights — the right to maintain ownership in future rounds

• Stacked SAFEs at different caps can produce far more dilution than founders modelled
• Post-money SAFEs shift dilution from the investor onto the founder entirely
• No maturity means no forcing event if the company simply continues without raising
• Investors hold no governance rights until conversion