A startup investment agreement where an investor provides capital in exchange for the right to receive equity in a future priced round—commonly used in early-stage fundraising.
What is a SAFE (Simple Agreement for Future Equity)?
A SAFE, or Simple Agreement for Future Equity, is a widely used investment instrument in early-stage startup fundraising. It allows an investor to contribute funds to a startup today in exchange for the right to receive equity at a later date, usually when the company raises a formal priced round of financing (such as a Seed or Series A round). For non-U.S. founders building U.S. companies, SAFEs are one of the simplest and most founder-friendly ways to raise early capital—especially from angel investors or startup accelerators.
Unlike traditional equity financing, a SAFE is not a loan and does not have interest or a maturity date. It doesn’t immediately grant the investor shares. Instead, the investment converts into equity in the future, typically at a discount or subject to a valuation cap that rewards the early investor for taking on more risk.
There are generally four components to a SAFE:
- The investment amount (how much the investor contributes now)
- A valuation cap (the maximum company valuation at which the investment will convert into equity)
- A discount rate (optional—usually 10–20%)
- The triggering event (usually the next priced equity round)
SAFEs were originally created by the startup accelerator Y Combinator in 2013 as a simpler, founder-friendly alternative to convertible notes. Unlike convertible notes, SAFEs do not accrue interest and do not need to be repaid.
For example, if an angel investor contributes $50,000 through a SAFE with a valuation cap of $5 million, and your next priced round is at a $10 million valuation, their investment will convert into shares as if the valuation were $5 million—giving them more equity than a later investor at the $10 million valuation.
From a legal and compliance standpoint, SAFEs are not considered debt and are generally viewed favorably by founders because they avoid complex negotiations, legal fees, and dilution calculations at the earliest stages. However, they do appear on your company’s cap table and impact how ownership is distributed once the SAFE converts.
It’s important to document SAFEs clearly and manage expectations with investors. Founders should also understand that while SAFEs delay valuation discussions, they don’t eliminate them. Eventually, when the company raises a priced round, all outstanding SAFEs convert, often all at once.
In summary, a SAFE is a lightweight, flexible tool that lets early-stage startups raise funding without issuing shares or setting a valuation immediately. For non-U.S. founders building U.S. businesses, SAFEs are a fast and clean way to secure investment while keeping the legal and administrative burden low in the critical early stages.
