SAFE Note
A Simple Agreement for Future Equity — a Y Combinator-created instrument that gives investors the right to future equity without setting a valuation upfront. Unlike convertible notes, SAFEs carry no interest rate and no maturity date, making them the simplest early-stage funding instrument.
What Is a SAFE Note?
A SAFE (Simple Agreement for Future Equity) is a financing instrument created by Y Combinator that gives investors the right to receive equity in a future priced round. Unlike a convertible note, a SAFE is not debt — it has no interest rate, no maturity date, and no repayment obligation. It is the most common instrument for pre-seed and seed-stage fundraising.
How a SAFE Converts to Equity
When a qualifying priced round occurs, the SAFE automatically converts into shares of preferred stock. The conversion price is determined by a valuation cap (maximum price per share) or a discount (percentage reduction from the round price) — whichever gives the SAFE holder more shares. Post-money SAFEs (the current Y Combinator standard) make it clear exactly what percentage of the company the SAFE holder will own at conversion.
SAFE vs. Convertible Note: Which Should You Use?
SAFEs are simpler, faster, and cheaper to execute. They are preferred for seed-stage raises under $2M where speed matters. Convertible notes offer investors more protections (interest, maturity enforcement) and are preferred when investors want debt-like downside protection. For founders seeking alternatives to equity entirely, consider non-dilutive funding.
