ABACO – Avalancha Ventures

The Wire: Legal

SAFE

What is a SAFE?

SAFE stands for a “Simple Agreement for Future Equity”. A SAFE grants an investor the right to obtain equity to become a shareholder of a startup at a future date, assuming the startup sells shares in a subsequent financing.

This instrument was created and published by Y-Combinator in 2013 to replace at the time other common instruments like convertible notes and equity.

What are it´s most important characteristics?

A SAFE allows a startup to raise funds similarly to a convertible note, however, a SAFE is not a debt instrument, it does not accrue interest, have a maturity date or a legal obligation to be paid back by the startup company.

Pre-Money SAFE vs. Post-Money SAFE

The Pre-Money SAFE will convert to shares along with all the other convertible instruments in the next equity round, until then investors can´t know precisely their ownership of the company. During the conversion the SAFEs will dilute each other.
The Post-Money SAFE by considering the post money valuation of the company allows investors to get more transparency on the ownership of their investment right from the start.
Unlike the Pre-Money the conversion of other instruments won´t dilute the percentage ownership of the Post-Money investor whether these instruments are Convertible Notes or SAFEs (Pre-Money or Post-Money).

Where can I download a standard version of a SAFE?

You can find the Post-Money SAFE templates from YCombinator here.

How do the different financing mechanisms compare?

Characteristics	SAFE	Convertible Note	Equity
Easy and agile documentation	YES	YES	NO
Flexibility to obtain ongoing financing	YES	YES	NO
Valuation is postponed in the future when there´s more information	YES	YES	NO
Equity Instrument	NO	NO	YES
The instrument has no expiration date	YES	NO	YES
The instrument has no interest rate	NO	YES	NO
Simple capitalization table for the startup	YES	YES	NO
Minimization of legal costs	YES	YES	NO
Investor is shareholder of the startup	NO	NO	YES