A SAFE, or Simple Agreement for Future Equity, is a financing contract that grants investors rights to future equity in a startup in exchange for an upfront investment. Unlike traditional convertible notes, SAFEs don’t accrue interest or have a maturity date. They’re often used in early-stage fundraising for their simplicity and flexibility.
Why It Matters: SAFEs allow startups to raise funds quickly without immediate valuation pressures or complex terms. They help founders attract investment while deferring equity issuance until a future financing round.
Common Terms: SAFEs may include valuation caps and discounts, influencing the equity an investor receives when converted.
Why do startups use SAFEs?
SAFEs simplify early-stage fundraising, avoiding debt and immediate valuation, helping startups secure fast investment.
How does a SAFE differ from a convertible note?
Unlike convertible notes, SAFEs don’t have interest rates or maturity dates, making them simpler and more flexible.
What happens to a SAFE in a future funding round?
In a future funding round, the SAFE converts into equity, typically under agreed terms like a valuation cap or discount.
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