SAFE Agreement

A SAFE (Simple Agreement for Future Equity) is a financing instrument created by Y Combinator that allows investors to provide capital to startups in exchange for the right to obtain equity at a future date, typically during a subsequent financing round. Unlike convertible notes, SAFEs have no interest rate, maturity date, or debt component, making them simpler and more founder-friendly. The agreement specifies the investment amount, valuation cap, and discount rate that will apply when the SAFE converts to equity. SAFEs have become popular for seed-stage investments due to their simplicity and speed of execution, though they can be complex regarding dilution calculations.