A SAFE (Simple Agreement for Future Equity) is an investment contract created by Y Combinator in 2013 that allows investors to provide capital to a startup in exchange for the right to receive equity at a future date, typically when the company raises a priced equity round.

SAFEs have become the most popular instrument for early-stage fundraising because they are simpler, faster, and cheaper to execute than convertible notes or priced rounds.

Key SAFE Features

• No interest rate or maturity date (unlike convertible notes)
• Converts to equity upon a triggering event (usually the next priced round)
• Can include a valuation cap, discount, or both
• Not a debt instrument — no repayment obligation
• Standard templates available from Y Combinator

Types of SAFEs

• Cap only: Sets a maximum valuation for conversion
• Discount only: Provides a discount (typically 15-25%) to the next round price
• Cap and discount: Investor gets the better of the two terms
• MFN (Most Favored Nation): No cap or discount, but gets the best terms given to any future SAFE investor