Deal Terms & Term Sheets
What is a SAFE note in startup fundraising?
A SAFE (Simple Agreement for Future Equity) is a contract that gives an investor the right to receive equity in a future priced round, in exchange for money invested today.
A SAFE (Simple Agreement for Future Equity) was created by Y Combinator in 2013 as a simpler alternative to convertible notes for early-stage fundraising. It's now the dominant instrument for pre-seed and seed investing.
Here's the basic mechanic: an investor gives a startup money today. In exchange, that investor gets the right to receive equity (stock) when the startup eventually raises a 'priced round' (usually a Series A with a specific valuation). The SAFE converts into preferred stock at that point, typically at a discount to the Series A price or at a valuation cap.
The valuation cap sets the maximum valuation at which the SAFE converts. If you invest at a $10M cap and the Series A is priced at $20M, your SAFE converts as if the valuation were $10M — meaning you get twice as many shares as Series A investors for the same price.
The discount (typically 15–20%) gives SAFE holders a lower conversion price than Series A investors, rewarding them for investing earlier.
SAFEs are simpler than convertible notes because they have no interest rate and no maturity date — two things that often create awkward dynamics for early-stage startups.
The key risk: SAFEs are not debt. If the company fails before a priced round, SAFE investors typically get nothing.
Related glossary terms
Related questions
What is a convertible note?
A convertible note is a short-term debt instrument that converts into equity at a future financing round, typically with a valuation cap and a discount rate as rewards for investing early.
What is a term sheet?
A term sheet is a non-binding document that outlines the key terms of a proposed investment — valuation, amount, ownership percentage, and governance rights. It's the starting point for negotiating a deal.
What is a cap table?
A cap table (capitalization table) is a spreadsheet or document that shows who owns what percentage of a company — founders, employees, investors — accounting for all shares, options, and convertible instruments.