What it is
A SAFE is a short investment contract, created by Y Combinator in 2013, that lets a startup take cash today in exchange for the right to shares later. It converts into equity at the next priced (usually equity) financing round, not immediately.
Facts
- A SAFE is not debt: it has no interest rate and no maturity date.
- Terms are set by a valuation cap and/or a discount (commonly 10% to 25%).
- The current standard is the post-money SAFE (YC, 2018), which makes dilution easier to calculate.
- SAFEs stay on the cap table as pending conversions until a priced round triggers them.
Who it's for
Early-stage (pre-seed/seed) founders who want to raise quickly and cheaply before setting a firm valuation.
How it helps you
It lets you close individual investors on a rolling basis without lawyers negotiating a full priced round, so you get money in the bank fast.
Caveats
Stacking many post-money SAFEs at low caps can cause surprising dilution at conversion. Model the fully converted cap table before signing more.
Conclusion
A SAFE is commonly used for early-stage funding and can be faster and less expensive than a priced round, but track every cap and discount so conversion doesn't dilute you more than expected.
