SAFE

SAFE stands for “Simple Agreement for Future Equity.” It is a financial instrument used by startups to raise capital in early funding rounds. A SAFE allows investors to provide funding to a company in exchange for the right to receive equity in the company at a later date, typically when the company conducts its next funding round. The key features of a SAFE include its simplicity and lack of complicated terms associated with traditional equity investments or convertible notes. SAFEs do not accrue interest and do not have a maturity date. Investors using SAFEs agree to convert their investment into equity once certain conditions are met, often at a predetermined valuation cap or discount rate that provides them with a favorable conversion rate compared to future investors. This instrument has gained popularity among startups and investors due to its straightforward nature and efficiency in facilitating early-stage funding.