LEGAL
Raising Capital
SAFE Notes: What They Are and Why Startups Use Them
SAFE (Simple Agreement for Future Equity) is the most common early-stage fundraising instrument. It allows investors to give you money now in exchange for the right to convert into equity in the future—usually at your next priced round.
Why it Matters
The SAFE (Simple Agreement for Future Equity) is a fast, flexible way to raise early-stage capital without pricing your company or issuing stock.
It’s become the default fundraising instrument for pre-seed and seed-stage startups.
Founders Checklist
Choose a SAFE template (e.g. Y Combinator’s standard SAFE)
Decide whether to include a valuation cap, discount, or both
Make sure your cap table reflects potential dilution
Track conversion mechanics carefully (especially for multiple SAFEs)
Disclose SAFEs clearly in investor updates and data rooms
Founder Fails
Raised too many SAFEs without tracking aggregate dilution
Didn’t understand conversion terms > surprise cap table impact
Promised conflicting terms to different investors > legal cleanup needed
When to ask for Help
Before setting your valuation cap or discount rate
If you’re negotiating multiple SAFEs with different terms
When mixing SAFEs with other fundraising instruments
To ensure your cap table model reflects the impact of SAFEs
If you're unsure how a SAFE affects your company’s ownership structure
Frequently Asked Questions
Q: What is a SAFE?
A: A SAFE is a legal contract where an investor gives you money now in exchange for future equity — typically at your next priced round.
Q: How is it different from a convertible note?
A: SAFEs don’t accrue interest and don’t have a maturity date. That makes them founder-friendly — but they still result in dilution.
Q: Do SAFEs give away ownership immediately?
A: No. SAFEs convert into equity later — usually when you raise a Series A or another priced round.
Q: Should I use a valuation cap or a discount?
A: Most SAFEs today include a valuation cap (and sometimes a discount too). The cap sets the maximum valuation at which the SAFE converts.