Simple Agreement for Future Equity (SAFE) 

A Simple Agreement for Future Equity (SAFE) is an investment contract between a startup and an investor, where the investor provides capital today in exchange for the right to convert that investment into equity at a future financing event, typically at a discounted price or with a valuation cap. 

Introduced by Y Combinator in 2013, SAFEs simplify early-stage fundraising by eliminating complex interest rates, maturity dates, and repayment obligations associated with convertible notes. 

Key components of a SAFE include: 

• Valuation Cap: Maximum company valuation for converting investment into equity 

• Discount Rate: Percentage reduction from the future funding round’s price per share 

• MFN (Most Favored Nation) Clause: Option to adopt better terms if offered later 

SAFEs are common in pre-seed and seed rounds due to their flexibility and investor-friendly terms.