SAFE, or Simple Agreement for Future Equity (also referred to as SAFE note), is a type of investment contract used by startups to raise capital from investors. It allows investors to invest money in a startup in exchange for the promise of future equity. In other words, it's a way for startups to raise money without having to give away equity right away.
If you're a startup founder, you know that raising capital is one of the most crucial and overwhelming steps in the early stages of your business. SAFE is invented by Y Combinator in 2013 specifically to give early-stage startups an alternative to traditional ways of raising funds like equity or debt. SAFE streamlines the fund raising process and reduces legal complexities.
"Simple" is the operative word with SAFE notes. More and more startup founders use SAFE notes precisely because it's simple , cost-efficient, and easy to implement. It allows startups to access funds fast without diluting their ownership upfront, which is particularly beneficial in the early stages when equity is most valuable.
A Simple Agreement for Future Equity is a legal document that outlines the terms of investment. The investor provides capital to the startup in exchange for the right to receive equity at a future date or event, such as a subsequent financing round or an acquisition.
Unlike traditional equity investments, a SAFE agreement does not specify a valuation of the company at the time of the investment.
There are several benefits to using a SAFE agreement template for your startup:
A SAFE Agreement has two key components - the investment and the conversion. When an investor invests in a startup using a SAFE Agreement, they're essentially giving the startup money in exchange for the promise of future equity. The amount of equity is not determined at the time of the investment and will be determined in the future when a triggering event occurs.
A triggering event is an event that triggers the conversion of the SAFE Agreement into equity. Common triggering events include an acquisition, an IPO, or a subsequent equity financing round. When a triggering event occurs, the investor's investment is converted into equity at a predetermined valuation.
SAFE (Simple Agreement for Future Equity) is a flexible, founder-friendly way to grant an investor the right to acquire equity in a future financing round. This streamlining early-stage fundraising by simplifying terms and reducing legal complexities.
Cake has a built-in SAFE note template that you can use and customize to your requirements. The SAFE note template includes the following components:
Cake does not only provide SAFE note templates, it also has tools that allows startup founders to model capital raises, play around with their cap tables, and see the impact a SAFE note could have for your unique scenarios.
Yes, a SAFE note is a legally binding document that outlines the terms and conditions of the investment agreement between the startup and the investor.
No, a SAFE note does not have a maturity date or an interest rate. It provides investors with the right to receive equity in the future, subject to the occurrence of a future event.
If the qualifying event never occurs, the investor does not receive any equity in the company, and the startup is not required to repay the investor's investment.
No, a SAFE note cannot be converted into debt. It is an equity instrument that provides investors with a right to equity in the future.
Yes, a SAFE note can be sold to a third party, subject to the terms and conditions of the agreement.
Yes, SAFE notes are subject to taxation. Investors must pay taxes on any capital gains they receive from the investment.
Cake allows you to create legal contracts, send them for signing, and automate your contract management, all in one place.