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Glossary

SAFE

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A SAFE (Simple Agreement for Future Equity) is a contract that lets an investor convert their cash into equity at a future priced round, without setting a valuation today. Y Combinator introduced the SAFE in 2013 to replace convertible notes with something simpler: no interest, no maturity date.

How a SAFE works

When you sign a SAFE, the investor wires money in exchange for a promise. At your next priced equity round (typically a Series Seed or Series A), the SAFE converts into shares. The conversion price is set by either a valuation cap, a discount, or both.

  • Valuation cap. The maximum company valuation at which the SAFE will convert, no matter what the actual round price is.
  • Discount. A percentage off the round price (typically 10–20%).
  • Most-favored-nation (MFN). A clause that gives the SAFE-holder the best terms given to any later investor.

Why founders use SAFEs

  • Speed. A SAFE is usually a 5-page document; closing takes hours, not weeks.
  • No valuation negotiation upfront. You defer the hardest conversation until you have more leverage.
  • Standard terms. Investors recognize YC's post-money SAFE template.

Common pitfalls

Stacking many SAFEs at different caps can cause more dilution than founders expect at conversion. Model the cap table at conversion before signing additional SAFEs.