SAFE (Simple Agreement for Future Equity)
A contract that converts an investor's cash into equity at a future priced round, without interest or a maturity date.
A SAFE is not debt and not stock at the time of signing. It is a promise that the investor's money converts into preferred shares when the company later closes a priced equity round, typically with a valuation cap and/or a discount that rewards the SAFE holder for taking early risk.
Y Combinator introduced the SAFE in 2013 to replace convertible notes for seed rounds, removing the interest rate and maturity date that made notes awkward for founders. Most SAFEs used today are 'post-money' SAFEs, meaning the valuation cap sets the investor's ownership percentage after all other SAFEs and the round itself are accounted for, which makes dilution far more predictable than the old pre-money version.
Because a SAFE has no maturity date, it can sit on the cap table indefinitely if the company never raises a priced round, which is why some investors push for a most-favored-nation clause or a side letter with pro-rata rights instead of relying on the SAFE terms alone.
The SAFE became the default early-stage instrument because it lets founders close money in days on a short standard document instead of negotiating a full priced round. Y Combinator says the SAFE was created there in 2013 and that the post-money SAFE has been its standard since 2018. YC's standard forms come in a few variants: a valuation cap, a discount, or an MFN (most favored nation) SAFE, which has no cap or discount and instead automatically takes the terms of any better SAFE the company issues later.
That speed has a cost founders routinely underestimate: SAFEs stack. Each one converts into its own slice of the company, and total dilution only becomes visible when the priced round forces the math, so model every SAFE in a cap table before you raise priced money (the Post-Money Valuation entry shows how quickly they add up).
A SAFE also carries none of the governance terms of a priced round. The base form has no board seat, no protective provisions, and no information rights; investors who want pro-rata or information rights usually get them through a side letter. And the valuation cap is not the company's valuation — it's a ceiling on the SAFE holder's conversion price, not a priced valuation of the business.
A seed investor puts in $250,000 on a SAFE with a $10M post-money valuation cap. When the company raises a Series A at a $10M pre-money valuation, the SAFE converts as if the investor had bought in at the $10M cap, giving them roughly 2.5% of the company before Series A dilution.
Use a post-money SAFE for speed and simplicity in seed rounds, but track every SAFE's cap and discount in a live cap table model before you raise priced money — stacking multiple SAFEs at different caps is the single most common source of founder surprise at Series A.
Is a SAFE debt or equity?
Neither at signing. It is a contractual right to receive equity in the future, with no interest accruing and no repayment obligation, which is why it does not sit on the balance sheet as debt.
Does a SAFE have a maturity date?
No. Unlike a convertible note, a standard SAFE never comes due — it only converts when a triggering event happens, most commonly a priced equity round.
What's the difference between a valuation cap and a discount on a SAFE?
They protect against different outcomes. The cap pays off when the priced round comes in high; the discount only helps when it comes in low. The Discount Rate entry shows where the crossover sits.
Pre-money vs. post-money SAFE: which will I sign?
Almost certainly post-money — YC has used it as its standard since 2018. With a post-money cap, each investor knows their exact ownership at signing: per YC's own example, $1M raised at a $6.7M post-money cap is about 15% of the company before the priced round dilutes everyone.
What happens to a SAFE if the company never raises a priced round?
It sits unconverted, because a standard SAFE has no maturity date. If the company is acquired or shuts down first, the SAFE's liquidity and dissolution terms govern what the holder gets back — read those sections, not just the cap and discount.
Sources
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.