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A Simple Agreement for Future Equity — a convertible instrument used in early-stage fundraising that converts to equity at a future priced round.
A SAFE (Simple Agreement for Future Equity) is a convertible instrument widely used in pre-seed and seed fundraising. Invented by Y Combinator in 2013, it allows investors to provide capital to a startup that converts into equity at a future priced round, without requiring an immediate valuation negotiation.
SAFEs typically include a valuation cap (the maximum valuation at which the SAFE converts) and/or a discount rate (a percentage reduction on the price per share at the next round, rewarding early investors for their risk). A SAFE with a $6M cap and a 20% discount gives the investor equity at the lower of the two terms when the next priced round closes.
SAFEs are founder-friendly compared to convertible notes because they have no interest rate, no maturity date, and no debt obligations. They are simple, fast, and cheap to execute — a key reason they've become the default instrument for early-stage rounds.
From an investor's perspective, the key risk with SAFEs is dilution uncertainty: investors don't know their exact ownership percentage until the priced round closes.
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