SAFE

A simple agreement for future equity: money now, shares at the next priced round.

Also known as: SAFE, Simple Agreement for Future Equity, safe note

A SAFE (Simple Agreement for Future Equity) gives investors future shares in exchange for money now — no valuation negotiated today, no interest, no maturity date. At the next priced round, the SAFE converts into shares at a discount, or capped at a maximum valuation (cap), whichever favors the investor most.

today:    investor wires $100k on a SAFE (cap $5M, 20% discount)
Series A: priced at $10M → cap applies → SAFE converts as if round were $5M (roughly 2× the shares)

It dominates early fundraising because it defers the hardest negotiation (valuation) to a moment with more information, at the cost of founders not knowing exactly what they sold until conversion. Standard forms (widely used templates) keep legal costs near zero — use them unmodified unless counsel says otherwise.

The classic mistakes:

Stacking uncapped SAFEs. Money in without caps or discounts at escalating implied valuations creates a conversion shock at the priced round — founders diluted far beyond expectations. Cap every SAFE.
Forgetting conversion math until the round. Founders modeling ownership without converting outstanding SAFEs discover their stake mid-negotiation. Model fully-diluted ownership continuously (see cap table, SAFE conversion).
MFN confusion. Most-favored-nation clauses promise later, better terms retroactively. Track every MFN issued — they all trigger at once at pricing.
Treating SAFEs as free money. No maturity or interest does not mean no cost: every SAFE is future dilution at terms set later. Raise what the milestones need, not what is offered.
Non-standard forms. Custom-drafted SAFEs with quirky terms slow every future round (every new investor must parse them). Standards exist for everyone’s benefit — including yours at exit.

Use SAFEs for pre-seed/seed speed with caps and discounts set deliberately. Graduate to priced rounds when valuation is defensible — SAFEs are a bridge to pricing, not a substitute for it.