Simple Agreement For Future Equity Safe Template

In plain language: States the exact dollar amount the investor is contributing and confirms the company's receipt of those funds as the consideration for the SAFE.

Common mistake: Leaving the investment amount as a range or subject to a later tranche without a separate amendment. Courts have found ambiguous amounts make the instrument unenforceable as a binding obligation.

In plain language: Sets the maximum effective company valuation for conversion purposes, ensuring the investor receives at least a minimum equity stake regardless of how high the Series A valuation is.

Common mistake: Setting a valuation cap without modeling the resulting ownership percentage at conversion. A $5M cap sounds generous until founders realize it implies 20% dilution on a $25K check.

In plain language: Defines the percentage discount the SAFE holder receives on the price per share paid by new investors in the qualifying financing round.

Common mistake: Omitting the discount rate entirely when the valuation cap is very high. In a flat or down round where the cap is irrelevant, investors with no discount rate receive no conversion benefit.

In plain language: Describes the automatic conversion of the SAFE into preferred shares when the company closes a priced equity round above the qualifying threshold, and how the conversion price is calculated.

Common mistake: Failing to define the 'lower of' mechanic explicitly. Ambiguity here is the most frequently litigated clause in SAFE instruments — if the cap and discount both apply, the investor always converts at whichever price generates more shares.

In plain language: Governs what happens to the SAFE if the company is acquired or goes public before closing a priced round — typically giving the investor a choice between cash at the purchase amount or conversion at the cap price.

Common mistake: Not including a multiplier for the cash payout option in a liquidity event. The standard YC post-money SAFE pays back only the purchase amount — many investors negotiate a 1× or 1.5× return floor.

In plain language: Sets out the SAFE holder's rights if the company winds down or goes bankrupt before any conversion trigger — typically a priority return of the investment ahead of common stockholders.

Common mistake: Treating the SAFE as equivalent to debt in a dissolution. SAFEs are not debt instruments and typically rank below all creditors — including convertible notes — in an insolvency. Investors who misunderstand this may recover nothing.

In plain language: Grants the investor the right to participate in the next priced round up to their pro-rata ownership amount, preserving their percentage stake post-conversion.

Common mistake: Including pro-rata rights in every SAFE without restriction. Granting pro-rata to dozens of small angel investors can complicate Series A closing, as each must be offered a participation right — some lead VCs view this as a blocker.

In plain language: Allows the SAFE holder to adopt any more favorable economic terms offered to future SAFE investors before the next priced round, protecting early investors from being disadvantaged by later, better-terms instruments.

Common mistake: Including MFN with no carve-outs. Without exceptions for later-stage or strategically different instruments, even a small operational investment from a strategic partner could trigger an MFN claim across all prior SAFE holders.

In plain language: The company confirms it is properly incorporated, has authority to issue the SAFE, and that the instrument does not violate existing agreements — and the investor confirms they are an accredited investor and understand the speculative nature of the investment.

Common mistake: Skipping the accredited investor representation. Selling a SAFE to a non-accredited investor without qualifying under an applicable exemption violates federal securities law and can require rescission of the investment.

In plain language: Specifies the jurisdiction whose laws govern the agreement and how disputes are resolved — typically Delaware law for US startups, with court or arbitration as the chosen forum.

Common mistake: Choosing the founder's home state instead of Delaware when the company is a Delaware corporation. Applying California or New York law to a Delaware corporation creates a conflict-of-law trap that complicates enforcement.

A SAFE is a short-form investment instrument that gives an investor the right to receive equity in a startup at a future priced funding round, in exchange for capital provided today. It is not a loan — it carries no interest rate or maturity date. Created by Y Combinator in 2013, it has become the most widely used early-stage investment instrument in the US startup ecosystem, replacing convertible notes for many angel and seed rounds.

A convertible note is debt with an interest rate and a maturity date by which it must be repaid or converted. A SAFE has no interest, no maturity date, and no repayment obligation — it converts to equity or pays out only upon a defined trigger event. SAFEs are simpler and faster to close, but investors have less downside protection than noteholders because SAFEs are not debt and rank below creditors in a dissolution.

A valuation cap is the maximum company valuation at which a SAFE converts into equity. If a startup raises its Series A at a $20M valuation but an investor's SAFE has a $5M cap, the investor converts at the $5M price per share — receiving four times more shares than Series A investors at the same dollar amount. The cap is the primary economic term SAFE investors negotiate, and founders should model its dilutive impact before agreeing to any figure.

In a pre-money SAFE (the original 2013 YC format), the valuation cap is applied before including the SAFE investment itself — making dilution harder to predict when multiple SAFEs are outstanding. In a post-money SAFE (the revised 2018 YC format), the cap is calculated after the SAFE amount is included, making each investor's ownership percentage at conversion mathematically fixed and predictable. Y Combinator now recommends the post-money format for most use cases.

Yes. A SAFE is a security under US federal law, confirmed by the SEC in a 2017 investor bulletin. Issuers must comply with federal and state securities laws, including qualifying under a Regulation D exemption for offerings to accredited investors. Selling a SAFE to a non-accredited investor without a valid exemption exposes the company to rescission liability and potential regulatory action.

Three standard triggers exist: a Qualified Financing (a priced equity round above the defined threshold, typically $1M or more), a Liquidity Event (acquisition, merger, or IPO), and a Dissolution Event (company wind-down or bankruptcy). The investor receives equity at conversion in the first two cases; in a dissolution, they typically receive a cash return of the purchase amount ahead of common stockholders but behind creditors.

SAFEs were designed for US Delaware corporations and are most commonly used in North America. In the UK and EU, equivalent instruments exist (the UK SEIS/EIS-compatible Advanced Subscription Agreement, and various national equivalents in Europe) that are structured to comply with local securities regulations. Using a US-format SAFE in a non-US company raises significant securities law and tax complications — local counsel should be engaged before doing so.

Outstanding SAFEs do not appear as shares on the cap table — they represent a contingent obligation to issue shares in the future. Best practice is to model SAFEs on a fully diluted, as-converted basis alongside the option pool, showing their projected ownership percentage at the expected Series A price. Failing to include SAFEs in cap table modeling is one of the most common sources of founder surprise at Series A.

For a standard YC post-money SAFE with typical terms and a single investor, an experienced founder can complete and execute the template with limited legal assistance. However, legal review is strongly recommended when customizing terms (non-standard MFN, side letters, modified conversion mechanics), issuing to more than five investors, or operating outside the US. A startup attorney can review a SAFE in 1–2 hours for $300–$600 — typically worthwhile given the equity stakes involved.