Simple Agreement for Future Equity (SAFE)

A Simple Agreement for Future Equity (SAFE) is a binding contract between a company and an investor, particularly a startup, wherein the company promises to give the investor a future ownership interest in the company such as a future equity financing or purchase of the company shares, under the conditions prescribed in the agreement. The owner of the SAFE does not have an ownership interest in the company unless a triggering event like a merger or acquisition by another company, among other scenarios. It is often considered as a more founder-friendly alternative to a convertible note in that it helps defer calculation of valuation during seed rounds until a triggering event actually occurs.

Key Features of SAFE:

  • Flexibility: SAFEs offer flexibility in terms of conversion mechanisms and valuation, providing simplicity for both companies and investors.
  • Investor Protection: SAFEs typically include investor-friendly provisions that aim to protect investors' interests in case of various scenarios.
  • No Interest or Maturity Date: Unlike convertible notes, SAFEs do not accrue interest or have maturity dates, simplifying the investment structure.
  • Alignment with Startup Growth: SAFEs align with the growth trajectory of startups by converting into equity at future financing rounds.

Understanding these key features can help both companies and investors navigate SAFE agreements effectively and make informed decisions regarding early-stage investments.

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