SAFEs (simple agreements for future equity)
An investor pays now for the right to shares later, usually when the company raises a priced round. Quick and cheap to agree, with no interest or repayment date, but it is a promise of future ownership, and its terms decide how much of the company you give up.
- Shares
How it works
A SAFE is an agreement in which the company promises the investor a future ownership stake if certain events happen, such as a later equity financing or a sale of the company. Until then, the investor owns no shares. Unlike a convertible note, a SAFE is not a loan: it has no interest and no date by which you must repay it. Like convertible notes, SAFEs are often used in seed rounds, and they usually put off agreeing a valuation until the trigger event.
The main terms, as described by Y Combinator, which created the SAFE:
- Valuation cap: the highest valuation at which the SAFE converts into shares. If your priced round values the company above the cap, the SAFE converts at the cap. With the "post-money" SAFE, the share you sell equals the investment divided by the cap: $1 million on a $6.7 million post-money cap is about 15%.
- Discount: a lower price than new investors pay in the next round, for example 20% less.
What the SEC warns investors about: SAFEs are not standardized, and terms vary. Conversion may never happen: if the company never raises a priced round, is never sold, or raises money in a form the SAFE does not count, the SAFE may not convert. Check the conversion terms, any right for the company to buy the SAFE back, what happens if the company dissolves, and any voting rights.
It is a security. Selling SAFEs is a securities offering, so it needs an exemption, usually Regulation D for accredited investors (with a Form D filed within 15 days of the first sale) or Regulation Crowdfunding through a funding portal.
Count the dilution early: several SAFEs on different caps all convert at the next round. Model your ownership table before you sign each one.
Upsides and downsides
Upsides
- Quick and cheap to agree, often on a standard form
- No interest and no repayment date
- Puts off agreeing a valuation until a priced round
Downsides
- Ownership given up is not fixed until conversion, and several SAFEs add up
- Terms are not standardized, so each SAFE needs reading carefully
- Only works if the company expects to raise a priced round
Risks
- Stacked SAFEs on low caps can leave founders with much less than expected after the next round
- If the company never raises a priced round or is never sold, investors may be left in limbo, which can sour relationships
- Securities rules still apply to who you approach and how
What it costs
- How it is priced
- A future share of the company, set by the valuation cap, any discount, and the price of the next round
- Costs that are easy to miss
- Legal fees, usually lower than for a priced round
- Dilution that only shows when the SAFEs convert, often larger than founders expect when several are stacked
Any amount investors agree; often used for seed rounds.
Raising on SAFEs or notes? SAFEs and notes in your next round: see what they take when they convert
Does it fit?
Could fit when
- You run an early-stage company that needs money before a priced funding round
- Your company is aiming for fast growth and later venture rounds
Unlikely to fit when
- You want to keep full ownership
- Your business is not set up to raise priced equity rounds later
- You run a sole proprietorship, partnership or LLC and do not plan to form a corporation
Who can use it
- Business types: C corporation, Benefit corporation
- Open to businesses with no sales yet
- Designed for corporations that expect to raise a priced equity round later
- Sold under a securities exemption, such as Regulation D or Regulation Crowdfunding
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all hybrid instruments
0%
0 of 3 ticked
- Ownership model
- Terms chosen
- Securities exemption chosen
Regulation and protections
Regulators: U.S. Securities and Exchange Commission (SEC); State securities regulators.
Who runs it: Private providers, nationwide.
A SAFE is a security, so federal anti-fraud rules and the rules of the exemption you use apply. States can require notice filings and fees.
Types of provider: Angel investors and syndicates; Venture capital funds and accelerators; Funding portals, for SAFEs sold under Regulation Crowdfunding.
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 17, 2026.
Sources
- SEC: Common startup securities (convertible notes and SAFEs) · checked October 17, 2026
- SEC Office of Investor Education and Advocacy: Investor Bulletin, Be Cautious of SAFEs in Crowdfunding (May 9, 2017) · checked October 17, 2026
- Y Combinator: SAFE (the instrument's own documents and definitions) · checked October 17, 2026
- SEC: Exempt offerings (Regulation D and Form D) · checked October 17, 2026
Something wrong or out of date?
Every fact here comes from a source, and rules and limits change. Email what looks wrong to data@fundladder.uk and, if you can, where you saw the right information. We use your email only to check the correction and reply. Privacy