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The Internet Compass

Venture

SAFE

Also known as: Simple Agreement for Future Equity

A SAFE (Simple Agreement for Future Equity) is an investment contract in which an investor provides capital now in exchange for the right to receive equity later, typically when the company raises a priced round, without setting a fixed valuation at the time of investment.

Unlike a convertible note, a SAFE is not debt: it carries no interest rate and no maturity date, so there's no repayment obligation or default risk if the company hasn't raised a priced round by a certain time.

Most SAFEs include a valuation cap (the maximum valuation at which the SAFE converts, protecting early investors from being diluted at a much higher later valuation), a discount rate (a percentage off the next round's price), or both.

Stacking many SAFEs across a long fundraising period is a well-known source of founder surprise at the priced round, because each SAFE's conversion math depends on the terms of every other outstanding instrument — total dilution isn't obvious until they're all modelled together.