SAFE (Simple Agreement for Future Equity)
A SAFE is a common early-stage financing instrument that converts into equity in a future priced round, typically without interest or maturity.
Definition
Definition A SAFE (Simple Agreement for Future Equity) is a financing instrument used primarily in early-stage venture where the investor provides capital today in exchange for the right to receive equity later, usually when the company completes a priced round. SAFEs typically include conversion mechanics such as a valuation cap and/or discount. Context SAFEs are designed to reduce legal complexity and speed fundraising. Unlike convertible notes, SAFEs generally do not accrue interest and do not have a maturity date, though terms can vary. The economic outcomes depend on the cap, discount, and how the company’s valuation evolves by the next priced round. Allocator and Family Office Relevance Family offices participating in early-stage deals frequently encounter SAFEs through angel rounds, syndicates, or direct founder relationships. The diligence focus is on economics (cap/discount), implied dilution, information rights (if any), and whether the company is likely to reach a priced round on reasonable terms. Decision Authority and Process Considerations Because SAFEs can be deceptively simple, families often apply internal guidelines: cap/discount bounds, minimum information standards, and exposure limits. Larger checks may still require counsel review, especially where multiple SAFEs create complex cap table dynamics. Key Takeaways SAFEs convert into equity at a future priced round Economics hinge on valuation cap and discount Simple structure does not eliminate dilution risk Families should assess conversion path and cap table implications