SAFEs

SAFEs

Key Takeaways

Full Text

Simple Agreements for Future Equity (SAFEs) have become increasingly common in the startup world. The concept was formalized by Y-Combinator lawyer Carolyn Levy as a replacement for convertible notes. They were historically used by top startups in Silicon Valley raising money from angel investors, but now see much broader use in a variety of contexts.

SAFEs accomplish the same goals as convertible notes, but they are not debt instruments. They do not accrue interest, do not have a maturity date, and there is no legal obligation for funds to be paid back.

The document acts as an agreement between a company and an investor. The investor invests money in the company, and the SAFE grants the investor a right to receive some of the company’s stock in a future equity round. The investor receives an equity stake if a triggering event occurs and the terms of the SAFE are met. Typical triggering events include future fundraising rounds, acquisition of the company, or an IPO of the company. The number of shares the SAFE investor receives depends on the terms of the SAFE. As an example, when a subsequent fundraising round triggers a SAFE, the equity received by the SAFE investor will likely depend on the share price at which the subsequent fundraising round is conducted, and furthermore likely subject to a discount rate as pre-determined in the SAFE.

Startups should seek the advice of a startup lawyer in determining whether a SAFE is an appropriate fundraising option given the company’s specific needs and requirements.

As always, should you have any questions about anything contained within this blog post, don’t hesitate to get in touch with us via call, text or e-mail using the contact details listed in our site footer, or via the form below.

Disclaimer: Please note that the information provided in this blog post does not, and is not intended to, constitute legal advice. Rather, all of the information, content, and materials available on this and every other page of our website is made available by us for general informational purposes only. The information in this post or anywhere else on this website may not constitute the most up-to-date legal or other information, and should not be relied upon for making any decision, acting, or refraining from acting. All liability on the part of Chatterjee Legal, P.C. and any and all of its attorneys and/or other professionals with respect to decisions made, actions taken or actions not taken based on the contents of this blog post, this page, or this website is hereby expressly disclaimed. The contents of this blog post, this page and this website are provided on an “as is” basis, and no representations are made that such content is free from errors. Our content contained within this post or elsewhere on our website may link to websites, content or other resources belonging to third parties. We present these links only for convenience purposes, and we make no representations or warranties of any kind with respect to any such third-party websites, content or other resources. Access to and/or use of this blog post, this page, or this website does not create an attorney-client relationship between you and Chatterjee Legal, P.C. or any of its attorneys or other professionals.

Share This Article

Related Articles

83(b) election

83b Election

For startups and other companies issuing equity subject to vesting restrictions, familiarity with the §83(b) election is essential.

Read More
Initial Public Offering

Initial Public Offering

An initial public offering (IPO) occurs when a privately owned company lists its shares on a stock exchange, making them available for purchase by the public.

Read More

This site uses cookies to provide you with more responsive and personalized service. By using this site, you agree to our use of cookies.

For more information, click here to review our Cookie Policy.