SAFE

A SAFE (Simple Agreement for Future Equity) is a seed-stage financing instrument in which an investor provides capital to a startup today in exchange for the right to receive equity at a later date, when a defined triggering event occurs — typically a priced funding round (Series A), an acquisition, or an IPO.¹²

Unlike a loan, a SAFE carries no interest and has no maturity date. Unlike a priced equity round, it requires no agreed valuation at the time of investment. This makes it faster, cheaper, and simpler than both alternatives — a SAFE can be signed in days with minimal legal fees.³

Origin

The SAFE was created by Y Combinator managing director Carolynn Levy in 2013 and announced in a YC blog post titled "Announcing the Safe, a Replacement for Convertible Notes."¹³ The instrument was designed to solve a specific problem: convertible notes — the dominant pre-Series A instrument at the time — were structured as debt, accruing interest, carrying maturity dates, and creating legal pressure to either convert or repay. For very early companies raising small rounds, this complexity was unnecessary overhead.¹

YC released the SAFE as an open document, free for anyone to use, and it rapidly became the industry standard for seed financing in the US.⁴

How a SAFE converts

When the triggering event occurs (usually a priced Series A), the SAFE converts to equity. The conversion price is determined by whichever mechanism gives the investor a better deal:³²

• Valuation cap — a ceiling on the price at which the SAFE converts. If the company raises at a $20M valuation but the SAFE has a $10M cap, the investor's shares are priced as if the company is worth $10M — giving them roughly 2x more shares than a new investor.
• Discount rate — a percentage reduction off the Series A price. A 20% discount means the SAFE converts at 80 cents on the dollar vs. new investors.
• MFN clause (Most Favored Nation) — no cap or discount, but the investor gets the right to adopt the terms of any subsequent SAFE that is more favorable.

As of 2024–25, the dominant SAFE uses a valuation cap with no discount. Uncapped MFN SAFEs have become rare.⁴

Pre-money vs. post-money SAFE

The original 2013 SAFE was a pre-money SAFE: the cap was applied to the pre-money valuation of the conversion round. This created ambiguity about actual ownership percentages when multiple SAFEs were outstanding, because each SAFE diluted the others.⁴

In 2018, YC released an updated post-money SAFE, which applies the cap to the company's post-money valuation at conversion. This gives both founders and investors precise knowledge of the investor's ownership percentage at the moment of signing — not at some uncertain future conversion event.⁴

SAFE vs. convertible note

SAFEs are generally more founder-friendly. Convertible notes remain more common when investors want debt seniority, or in jurisdictions where SAFEs are less legally tested.³

YC's current deal

YC's standard investment consists of two SAFEs: a $125,000 post-money SAFE at a 7% equity cap, and a $375,000 uncapped SAFE with an MFN clause — totaling $500,000.⁵ The split structure lets YC maintain a predictable ownership stake while giving companies flexibility on the uncapped portion.

The SAFE is also the instrument used in YC's term sheet-free investment model — founders receive funding with no board seats, no protective provisions, and no governance strings attached at the seed stage.

References

1. Announcing the Safe, a Replacement for Convertible Notes — Y Combinator(accessed Apr 19, 2026)
2. SAFE Note — Wall Street Prep(accessed Apr 19, 2026)
3. How do SAFEs work? — Mercury(accessed Apr 19, 2026)
4. How SAFE Became Silicon Valley's Default Contract — The VC Corner(accessed Apr 19, 2026)
5. YC Safe Financing Documents — Y Combinator(accessed Apr 19, 2026)