SAFE agreements
SAFEs (Simple Agreements for Future Equity) have become the standard for early-stage fundraising. They're simpler than convertible notes but still require careful attention.
Key takeaways
- →Understand valuation cap vs. discount mechanics
- →Track your cap table including all SAFEs issued
- →Use standard Y Combinator SAFE templates
- →Plan for conversion scenarios at priced round
Understand valuation cap vs. discount
The valuation cap sets a ceiling on the price per share at conversion—if your priced round values you higher, SAFE holders convert at the cap. The discount gives them a percentage off the priced round price. Some SAFEs have both (investor gets better of the two). Know which you're offering.
Track your cap table meticulously
SAFEs don't immediately dilute you, but they will at conversion. Maintain a pro forma cap table showing ownership after all SAFEs convert. Free tools like Carta or Pulley help. Losing track of outstanding SAFEs creates chaos at your priced round.
Use standard documents
Y Combinator's SAFE documents are industry standard. Modifying them signals inexperience or creates negotiation friction with experienced investors. Use them as-is unless you have compelling reasons. Investors appreciate consistency and predictability.
Plan for conversion scenarios
SAFEs convert at your next 'priced round'—equity financing above a certain threshold. Understand what qualifies as a conversion trigger. Model how different round sizes and valuations affect founder dilution. Go into your priced round knowing exactly what the cap table will look like after.
Got questions?
Every business is different. Let's discuss how these principles apply to your specific situation.