A Simple Agreement for Future Equity (SAFE) is a widely used investment agreement that
allows startups to raise capital quickly without having to set an immediate valuation for the
company. Created by Y Combinator in 2013, the SAFE agreement is often considered an
alternative to convertible notes and is particularly popular in early-stage funding.
How SAFE Agreements Work
In a SAFE, investors provide funds to a startup in exchange for a future equity stake that will
convert into shares at a later date, typically during a subsequent equity financing round or
liquidity event. Unlike convertible notes, SAFEs do not accrue interest and do not have a
maturity date. Conversion terms may include:
1. Valuation Cap - Sets a maximum valuation at which the SAFE can convert to equity.
2. Discount Rate - Offers investors a percentage discount on the future share price when
the SAFE converts.
3. Most Favored Nation (MFN) - Provides investors with the right to update their
SAFE terms if more favorable terms are offered to later investors.
Draft Version of a Simple Agreement for Future Equity (SAFE)
SAFE Investment Agreement
This Simple Agreement for Future Equity is entered into on [Date], between [Company
Name], a [Legal Structure, e.g., Corporation] with principal offices at [Address], and
[Investor Name], residing at [Address of Investor].
1. Investment and Issuance of SAFE
The Investor agrees to invest $[Investment Amount] in the Company. In exchange, the
Company grants the Investor the right to certain shares of the Company’s equity securities on
the terms defined in this agreement.
2. Events Triggering Conversion to Equity
2.1 Qualified Financing: Upon a qualifying equity financing event, the Investor’s SAFE
amount will convert into equity shares according to the lower of (i) the Valuation Cap of $
[Cap Amount] or (ii) a [Discount]% discount on the share price.
2.2 Liquidity Event: If a liquidity event, such as an acquisition or IPO, occurs before the
qualified financing, the Investor may receive either (i) a cash payment equal to the investment
amount or (ii) the conversion of the SAFE into shares at the applicable valuation cap or
discount, whichever results in a higher equity stake.
3. Termination
This SAFE terminates upon (i) conversion of the investment into shares during an equity
financing or liquidity event or (ii) a cash payment to the Investor upon termination of the
company.
4. Representations and Warranties
The Company and Investor each represent they are authorized to enter into this agreement,
and all terms are legally binding.
5. Miscellaneous
5.1 Governing Law: This SAFE shall be governed by the laws of the State of [State].
5.2 Entire Agreement: This document constitutes the entire agreement between the Company
and the Investor.
5.3 Amendments and Waivers: Any amendment to this SAFE must be in writing and signed
by both parties.
Signatures
Investor: [Investor Name and Signature]
Company: [Company Representative Name and Signature]
This draft represents a basic structure and should be reviewed by a legal professional to
ensure compliance with local laws and appropriate alignment with investor expectations.
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