SAFE
Why it matters
A SAFE lets a founder raise from a few angel investors in days or weeks, with a standard document and little legal cost. The cost is hidden. Each SAFE converts only when the priced round happens, and several of them converting together can dilute founders more than any single one suggested. It is easy to lose track of how much of the company has been promised.
How to apply it
- Use the standard document without bespoke clauses, so every investor is on the same terms.
- Keep one list of every SAFE: amount, cap, discount and date.
- Before agreeing the next one, model the cap table as if all outstanding SAFEs converted at once.
- Set the cap with the business's realistic trajectory in mind, not simply the first figure an investor proposes.
- Explain to each investor how their SAFE will convert, so the priced round holds no surprises.
What it is
Pricing shares is hard when a company is brand new. A SAFE sidesteps the question. An investor hands over cash, and the contract promises shares when a later round sets a price. Y Combinator created the SAFE in 2013 as a faster alternative to convertible loans.
A SAFE is not debt. It carries no interest and no repayment date. Its terms usually include a valuation cap, which sets the highest price at which it converts, and sometimes a discount to the price new investors pay. If the next round values the company above the cap, the SAFE holder gets shares at the lower capped price, as a reward for investing early.
Common mistakes
- Stacking SAFEs with different caps and losing sight of the total dilution.
- Treating a SAFE as free money. It is a promise of equity.
- Skipping legal advice because the document looks short. Local law and tax treatment still apply.
