SAFE Notes Explained
The Startup Founder's Guide
SAFEs are the standard fundraising instrument for pre-seed and seed startups. Learn what they are, how they differ from convertible notes, the types of SAFEs, and exactly how conversion works.
What is a SAFE note?
A SAFE — Simple Agreement for Future Equity — is an investment agreement where an investor provides capital to a startup in exchange for the contractual right to receive equity in a future priced funding round.
Y Combinator created SAFEs in 2013 to streamline early fundraising. Before SAFEs, most early-stage rounds used convertible notes — which are debt instruments with interest rates and maturity dates.
SAFEs are not debt. They have no interest rate, no maturity date, and no repayment obligation. The investor simply receives equity when a priced round occurs — at a price calculated using the SAFE terms (cap, discount, or both).
Why founders prefer SAFEs
- No debt on the balance sheet
- No interest accruing over time
- No maturity date pressure
- Simple — typically 5–6 pages
- Standardized YC templates (no lengthy negotiation)
- Closes quickly — days vs weeks for priced rounds
- Defers valuation discussion to a better-informed time
SAFE vs convertible note — full comparison
| Feature | SAFE | Convertible Note |
|---|---|---|
| Is it debt? | No | Yes — it is a loan |
| Interest rate | None | Typically 4%–8% per year |
| Maturity date | None (converts or expires) | Usually 18–24 months |
| Repayment obligation | No | Yes — if not converted by maturity |
| Converts at | Next priced round (or exit, dissolution) | Next priced round or maturity |
| Investor protections | Lighter — no repayment rights | Stronger — can demand repayment |
| Simplicity | Simple (5–6 pages typically) | More complex — requires legal review |
| Founder-friendly? | Yes | Less so |
| YC template available | Yes (4 standard forms) | No standard template |
Types of SAFEs
YC offers four standard SAFE templates — each with different investor protections and conversion mechanics.
Post-money SAFE (YC current)
YC RecommendedThe current standard YC SAFE. Conversion is calculated on the post-money valuation cap (including all SAFEs). This gives investors certainty about their ownership percentage.
Pre-money SAFE (YC original)
LegacyThe original 2013 YC SAFE. Conversion is calculated on the pre-money valuation. Creates ambiguity when multiple SAFEs with different caps convert simultaneously.
Valuation cap SAFE
Most commonA SAFE with only a valuation cap — no discount. The investor converts at the lower of the cap or the next round price.
Discount SAFE
Less commonA SAFE with a percentage discount (e.g., 20%) applied to the next round price. The investor gets shares at a lower price than Series A investors.
MFN SAFE
For earliest investorsMost Favored Nation SAFE — no cap, no discount. But the investor can adopt better terms from any future SAFE.
How SAFEs convert to equity
SAFE issued
Investor wires money. Company records the SAFE on the cap table with the investment amount and terms (cap, discount, or MFN).
Priced round triggered
The company raises a priced equity round (Series A). This triggers conversion of all outstanding SAFEs.
Conversion price calculated
For a capped SAFE: conversion price = min(cap / (fully diluted shares), Series A price). For a discounted SAFE: conversion price = Series A price × (1 - discount).
Shares issued
SAFE investors receive preferred shares (typically a SAFE preferred class or the same class as Series A investors) at the calculated conversion price.
Dilution applied
SAFE conversion happens before the new round shares are issued. SAFE shares dilute all existing stockholders including founders.
SAFE terminates
Once converted, the SAFE agreement terminates. The investor is now a shareholder with standard stockholder rights.
YC SAFE templates
Y Combinator publishes four open-source SAFE templates free of charge. These are the industry standard for pre-seed fundraising. Always have legal counsel review before signing.
Download the official templates at ycombinator.com/documents
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SAFE notes — frequently asked questions
What is a SAFE note?
A SAFE (Simple Agreement for Future Equity) is an investment instrument where an investor gives money now in exchange for the right to receive equity at a future priced round. SAFEs were created by Y Combinator in 2013 as a simpler alternative to convertible notes.
What is the difference between a SAFE and a convertible note?
A SAFE is not debt — no interest rate, no maturity date, no repayment obligation. A convertible note is debt that accrues interest and converts to equity. SAFEs are simpler and more founder-friendly. Convertible notes give investors more legal protections including repayment rights.
What is a valuation cap on a SAFE?
A valuation cap is the maximum valuation at which a SAFE converts to equity. If an investor buys a SAFE with a $5M cap and the company raises at $10M, the SAFE converts as if the valuation were $5M — giving the investor more shares per dollar.
What is the difference between pre-money and post-money SAFE?
The pre-money SAFE (original 2013) calculates ownership on pre-money valuation, creating ambiguity with multiple SAFEs. The post-money SAFE (2018 update) calculates ownership on post-money valuation including all SAFEs, giving investors more certainty about their ownership percentage.
What is an MFN SAFE?
An MFN (Most Favored Nation) SAFE has no cap or discount, but lets the investor adopt terms of any future SAFE with better terms. Used for very early investors who want flexibility and protection of future improvements.
Manage SAFEs on OpenCap — Free
Track all outstanding SAFEs, model conversion at any valuation, and see exactly how each SAFE dilutes the cap table.