SAFE Note
Simple Agreement for Future Equity
Definition
A SAFE (Simple Agreement for Future Equity) is an investment instrument that allows investors to buy shares at a discount in a future priced equity round. Unlike convertible notes, SAFEs don't accrue interest or have a maturity date.
In Simple Terms
Think of a SAFE note as a "reservation ticket" for equity. An investor gives you money now, and when you raise your next round, they automatically get shares at a discount price.
Why It Matters
SAFE notes are faster, cheaper, and simpler than traditional equity rounds. They allow startups to raise capital without complex valuations and give investors rights to shares in future rounds. Popularized by Y Combinator, they've become the standard for early-stage funding.
Example
You raise $100,000 on a SAFE with a 20% discount and a $5M valuation cap. When your Series A is priced at $10M, the SAFE investor gets shares as if the company was worth $5M (valuing it 2x less), plus they get an additional 20% discount on those shares.