The Simple Agreement for Future Equity (“SAFE”) is a financing instrument used in early-stage funding and seed funding, and resembles the dynamics of a convertible note without having the intricacies that a convertible debt instrument would entail. Via a SAFE the investor receives the right to purchase the shares of a company in a future round of equity, subject to pre-defined conditions set ex-ante in the agreement


Flexible, quick and simple source of funding in unpriced9 seed rounds

Can replace

Debt – convertible notes

Risk/Return Profile

High Risk/High Return

Enterprise Lifecyle

Seed stage


n/a – it is linked to the equity funding round (or dissolution event, or another triggering event)

Defining Criteria

Liquidity event or triggering event:
A specific event triggering conversion into equity. The most common event is an equity funding round (it is usually a series A financing, i.e. when the company provides equity shares to the investors for the first time). Another triggering event could be a trade sale, which is the sale of the overall business, or a part of it, to another company.
Dissolution event:
In the case of the company going out of business, the SAFE investor is entitled to receive its purchase amount or any other agreed amount back.
Discount rate:
It allows the SAFE investor to convert to equity at a discounted price in the course of a subsequent round of financing. Discount rates typically range between 10% and 25%, and the discount factor is calculated as follows: [100 – discount rate]%.
Valuation Cap:
Upon raising funds above a certain threshold, it allows the SAFE investor to convert at the cap share price. The valuation cap works as a ceiling on the valuation that will be used to calculate the conversion price for the SAFE investors, which are entitled to convert at the lower of the valuation cap or the price, in the subsequent financing.
Pro-rata rights or participation rights:
They entitle the SAFE investors, during subsequent rounds of funding, to invest additional funds in order to maintain their ownership percentage and avoid dilution.

Interesting Variants and Options

  • The triggering event can also be linked to a change of control, an M&A, or other predefined circumstances.


  • The valuation cap can be applied to pre 10 or post 11 money valuation.


  • Most favoured nation provision (“MFN”): in case of multiple issues of SAFE, the company has to inform all the SAFE investors about each new additional issuance and enable them to check whether the terms are preferable. For instance, if a valuation cap or discount is introduced in the new round of SAFE, then the previous holders are entitled to amend their SAFE to reflect the new terms.


  • Linking financial rewards to the achievement of impact, for example reducing the discount rate or increasing the valuation – see “Examples of relevant terms” below

Source: Innovative Financing Toolkit, BRIDDHI, 2020

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