SAFEs 101 for Investors

Posted Nov 1, 2018

What is a SAFE?

SAFE stands for “simple agreement for future equity,” and was created by Y Combinator in 2013 as an alternative to investing via convertible notes. SAFEs are neither equity nor debt – they represent a contractual right to future equity, in exchange for which the holder of the SAFE contributes capital to the company.

Like convertible notes, SAFEs enable investors to convert their investment to equity during a future preferred stock round and can include discounts or valuation caps. However, unlike convertible notes, SAFEs do not have a maturity date—so a SAFE might never convert to equity, and there is no requirement that the company repay investors. In addition, SAFEs do not accrue interest.

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