# Simple Agreement for Future Equity (SAFE) **Author:** The Carta Team **Read time:** 13 minutes **Published date:** November 6, 2025 Learn the potential advantages and disadvantages of fundraising with SAFE agreements and everything you need to know before issuing SAFEs. ## Contents - [What is a SAFE agreement?](#what-is-a-safe-agreement) - [How does a SAFE agreement work?](#how-does-a-safe-agreement-work) - [Understanding the key terms in a SAFE agreement](#understanding-the-key-terms-in-a-safe-agreement) - [How do SAFEs compare to convertible notes and priced rounds?](#how-do-safes-compare-to-convertible-notes-and-priced-rounds) - [Why do founders use SAFEs for early-stage fundraising?](#why-do-founders-use-safes-for-early-stage-fundraising) - [How to manage your SAFE fundraising round](#how-to-manage-your-safe-fundraising-round) - [Four factors to consider before you raise a SAFE](#four-factors-to-consider-before-you-raise-a-safe) - [Advantages and disadvantages of fundraising with SAFEs](#advantages-and-disadvantages-of-fundraising-with-safes) - [Frequently asked questions about SAFE agreements](#frequently-asked-questions-about-safe-agreements) ## What is a SAFE agreement? A SAFE (Simple Agreement for Future Equity) is a legal contract between a startup company and an investor that allows the investor to provide funding to your company now in exchange for the right to receive equity in your company at a future date—typically during your company’s next priced round or during a liquidity event. SAFEs were first developed by Y Combinator in 2013 as an alternative to convertible notes. A SAFE agreement is a [type of convertible security](/content/learn/startups/fundraising/convertible-securities/index.html), but unlike [debt instruments](/content/learn/startups/fundraising/debt-financing/index.html), SAFEs do not accrue interest or have a maturity date, making them an attractive fundraising option for early-stage startups. The main purpose of a SAFE is to allow you to [raise capital](/content/learn/startups/fundraising/index.html) without needing to set a specific valuation for your startup. Using a SAFE simplifies the fundraising process for first-time founders and their first investors, allowing you to secure funding quickly and focus on building your business. ## How does a SAFE agreement work? The basic mechanic of this financing document is straightforward. An investor gives you capital, and in return, the SAFE contract promises them stock when a specific conversion event occurs in the future. This process is known as conversion, where the investor's initial investment converts into company shares. A SAFE operates like any other type of legal contract. Key terms like a valuation cap or discount rate incentivize investors with the opportunity to receive shares at a favorable price when the SAFE converts into shares. ## Understanding the key terms in a SAFE agreement - **Valuation cap**: This is the maximum [company valuation](/content/learn/startups/equity-management/private-company-valuations/index.html) at which an investor's money converts into equity. - **Discount price (conversion discount)**: This is a percentage off the share price that the SAFE holder receives compared to the new investors in the priced round. - **Pre-money vs. post-money SAFEs**: The distinction between [pre-money SAFEs vs. post-money SAFEs](/content/learn/startups/fundraising/convertible-securities/pre-money-vs-post-money-safes/index.html) determines when the valuation cap is applied during a priced round. - **Most Favored Nation (MFN) clause**: This protects early investors by giving them the same improved terms if better terms are later issued by the startup. ## How do SAFEs compare to convertible notes and priced rounds? | | | | | | --- | --- | --- | --- | | **Feature** | **SAFE** | **Convertible note** | **Priced round** | | Is it debt? | No | Yes | No | | Maturity date? | No | Yes | No | | Accrues interest? | No | Yes | No | | Complexity and cost | Low | Medium | High | The key takeaway for a founder is that a SAFE is not a loan, so it doesn't add debt to your company's balance sheet. It reduces financial pressure on your new company, letting you focus on growth without the looming obligation of debt repayment. ## Why do founders use SAFEs for early-stage fundraising? SAFEs have become the go-to investment vehicle for [seed rounds](/content/learn/startups/fundraising/seed-funding/index.html) in the startup ecosystem because they are built for speed and simplicity. Founders appreciate SAFEs for several reasons that make the fundraising process less of a burden: - They are faster to execute than a priced round. - They typically involve lower legal fees. - They allow you to close with investors one by one on a rolling basis. - They let you focus your time on building your business, not on complex fundraising negotiations. ## How to manage your SAFE fundraising round Managing SAFEs requires organization. Tracking individual agreements in a spreadsheet can quickly become messy. A clean, well-managed SAFE round sets the stage for a smooth transition to your next phase of growth and builds trust with your stakeholders. ## Four factors to consider before you raise a SAFE ### 1. How much of your company’s equity do you plan to give up? ### 2. How much money do you want to raise in your next priced round? ### 3. What milestones will you use the money to reach? ### 4. How will you track your SAFE investments? ## Advantages and disadvantages of fundraising with SAFEs | | | | --- | --- | | **Advantages** | **Disadvantages** | | **SAFEs could be faster and more affordable than a priced round**. | **It could lead to excessive dilution**. | **They’re appealing to investors**. | **You may have a harder time finding investors**. | **They give you time to reach certain milestones**. | **They generally do not grant many of the preferred terms granted to preferred stockholders**. | **They have no interest rates**. | **QSBS tax benefits do not start until the SAFE converts into equity**. | ## Frequently asked questions about SAFE agreements #### Is a SAFE agreement considered debt or equity? A SAFE is neither debt nor a direct form of equity when you sign it; it is a contract that gives an investor the right to receive equity in the future. #### What happens if a SAFE never converts? If a company is acquired before a priced round occurs, the SAFE holder typically has the option to get their investment back or convert their investment into equity at the valuation cap. #### Do investors have any rights with a SAFE? SAFE holders do not have voting rights like stockholders do. However, they have the contractual right to receive stock in the future upon a triggering event.