Raising money · A term for founders abroad
What is a SAFE?
Simple Agreement for Future Equity. An investment contract, published by Y Combinator, where an investor pays now for shares issued at a later priced round; used by US corporations.
Checked against the IRS's instructions and the states' own rules. Reviewed by Saais Patel, compliance reviewer.
Term 87 of 105 in the glossary, filed under S.Y Combinator: the post-money SAFE
SAFE, for a founder abroad.
A SAFE, or Simple Agreement for Future Equity, isn't debt and isn't stock. It's a promise of shares when the company next raises a priced round. Y Combinator's post-money SAFE is the standard form: it comes with a valuation cap or a discount, or neither, with a most-favoured-nation clause.
On a post-money SAFE, the investor's share is fixed when it's signed: $100,000 on a $5 million cap is 2%. It assumes a corporation with shares to issue. An LLC can't cleanly issue one, which is one reason investors ask founders to convert. A SAFE sold to US investors usually needs a Form D filed with the SEC within 15 days.
Sources: Y Combinator: the post-money SAFE; SEC: filing a Form D notice.
Read next · guide · 3 minSAFEs explained: how startups raise before a priced round, and why they need a corporationWhat founders ask next.
- Can my LLC issue a SAFE?
- Not cleanly. A SAFE converts into stock, which an LLC doesn't have, so investors usually ask you to convert to a Delaware corporation first.
- How much of my company does a SAFE give away?
- On a post-money SAFE, the investment divided by the cap. The SAFEs guide works through stacking several.
03 · See also
- The company itselfC-CorporationA US corporation taxed on its own profit, which issues stock and is what US investors' paperwork assumes; usually formed in Delaware.Read the term
- Raising moneyCap tableThe record of who owns what share of a company, including options, SAFEs and other convertible instruments; investors read it first.Read the term
- Raising money83(b) electionA founder's choice to be taxed on restricted stock when it's granted rather than as it vests, filed with the IRS within 30 days, with no extension.Read the term
- Raising moneyAuthorised sharesThe most shares a corporation may issue, set in its certificate of incorporation; ten million is common for a startup.Read the term
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