SAFE Notes

What it is

The SAFE Notes tool explains Simple Agreements for Future Equity.

What this tool does

It models how SAFEs convert into equity in future rounds.

How it works

Valuation caps and discounts are applied to simulate conversion outcomes.

Why it matters

SAFEs are widely used but often misunderstood by founders.

About the SAFE (Simple Agreement for Future Equity)

Y Combinator introduced the SAFE (Simple Agreement for Future Equity) in late 2013. Since its introduction, it has been widely adopted by early-stage startups, both within and outside the Y Combinator ecosystem, as a primary instrument for raising initial capital.

The original SAFE was structured as a “pre-money” instrument. At the time, startups were typically raising smaller amounts of capital prior to a priced equity round, most commonly a Series A. The SAFE provided a simple and efficient mechanism to accept early investment, with the understanding that SAFE holders would convert into equity in that future priced round.

As early-stage fundraising evolved, startups began raising larger seed rounds as standalone financings rather than interim bridge rounds. In response to this shift, Y Combinator introduced the “post-money” SAFE in 2018.

Under the post-money structure, ownership for SAFE holders is calculated after all SAFE investments are accounted for, but prior to the dilution from a subsequent priced round. This structure allows both founders and investors to determine, with precision, the percentage of the company that has been sold through SAFEs. This level of clarity is essential for understanding dilution and ownership at the point of each investment.

The SAFE is designed around two core features that are particularly relevant for early-stage companies.

First, it enables high-resolution fundraising. Startups are able to close investments on a rolling basis, allowing individual investors to participate as soon as terms are agreed and funds are available. This removes the need to coordinate a single closing event across multiple investors and introduces greater flexibility into the fundraising process.

Second, it is a streamlined, single-document instrument with minimal negotiable terms. In most cases, the primary variable subject to negotiation is the valuation cap. The absence of interest rates, maturity dates, or complex covenants reduces both legal costs and the time required to complete a financing.

The SAFE is intended to balance the interests of both founders and investors while maintaining simplicity. It does not attempt to address every potential edge case, but instead focuses on the most common and relevant scenarios encountered in early-stage financing.

While SAFEs are widely used, they may not be suitable for every financing situation. Founders and investors are encouraged to review the structure carefully and obtain independent legal advice where appropriate.

Y Combinator developed the SAFE based on direct experience supporting a large number of early-stage financings, as well as input from founders, investors, legal counsel, and accountants. The resulting structure reflects commonly accepted market practices.

Y Combinator does not assume responsibility for the use or consequences of any SAFE document. Users should consult with a qualified lawyer in the relevant jurisdiction before executing any agreement.