What is a SAFE (Simple Agreement for Future Equity)?

A SAFE (Simple Agreement for Future Equity) is a legal document used by companies and early investors that allows investors to invest money relatively easily with the understanding that their investment will convert into equity when the company later raises a larger round of financing, often in the form of a Series A round, or is acquired or liquidates under certain terms. Y Combinator, the prolific West Coast Accelerator, first launched the concept of a SAFE in 2013 to address the issues that “Pre-Money” companies were facing during first round fundraising that often involved the use of Convertible Notes, which, from the perspective of Y Combinator, was an overly complicated way for a company to raise its initial round of investment from investors. Y Combinator further innovated the SAFE in 2018 and introduced a “Post-Money” SAFE to provide the ability for a SAFE to act as an independent funding round instead of a precursor for a future round. In either form, a SAFE is intended to be a simpler and quicker way—again, simpler and quicker than convertible notes—to bring early investor funds into a company. Those interested in using a SAFE should consider referring to the Y Combinator SAFE User Guide. Even though the SAFE is designed to be simple and straightforward, both parties entering into a SAFE should have their respective attorneys review the SAFE. The particular form of SAFE used in a transaction is often different than the standard templates made available by Y Combinator.