Definition · also called simple agreement for future equity, post-money SAFE, YC SAFE
A SAFE (simple agreement for future equity) is a short investment contract: an investor gives a startup money now, and in return gets the right to shares later, when the company raises a priced equity round. It is not debt: no interest, no maturity date.
Y Combinator created the SAFE in 2013 and standardized on the post-money SAFE in 2018; YC's templates are free to use. (source)
Worked example (post-money SAFE)
An angel invests $100,000 on a post-money SAFE with an $8M cap.
- Ownership at conversion = $100,000 ÷ $8,000,000 = 1.25% (before the new round's dilution)
- If the next round is priced at a $20M pre-money valuation, the SAFE still converts at the $8M cap, so the angel pays a much lower price per share than new investors.
Valuation cap and discount
- Valuation cap: the maximum valuation at which the SAFE converts. If the next round is priced higher, SAFE holders convert as if it were priced at the cap, getting more shares.
- Discount: a percentage off the next round's share price (often 10–25%).
- Post-money: with a post-money SAFE, the investor's ownership is fixed as investment ÷ post-money cap, which makes dilution easy to calculate.
- MFN (most favored nation): an uncapped SAFE that takes the best terms given to later SAFE investors.
SAFEs and bootstrapped founders
A SAFE assumes you will raise a priced round later. If you never do, as many profitable indie businesses never do, the SAFE may sit unconverted for years and complicate a sale. Before signing one, read what happens on an acquisition or dissolution, and consider whether a revenue-share or profit-share deal from bootstrapper-friendly funds fits better. Stripe Atlas includes SAFE templates with incorporation.
SAFE in practice: how indie makers use it
Most makers in the directory never raise. Those who took small checks, without the instrument always being public, show the trade-offs:
Raised $350,000 for Makerpad from investors including Calm Fund, Andrew Wilkinson and Sahil Lavingia about six months after launch, then sold to Zapier in 2021. (source: nocodeexits.substack.com)
ScrapingBee joined the TinySeed accelerator in May 2020, a small investment designed for mostly bootstrapped SaaS, and later sold to the Oxylabs group in an eight-figure deal. (source: scrapingbee.com)
Co-founded TinySeed in 2018 to fund bootstrapped SaaS companies with terms built for founders who may never raise a priced round; it has invested in more than 230 startups. (source: tinyseed.com)
Raised venture money for Buffer early on and later bought out investors to stay independent, a path a convertible instrument can complicate. (source: joel.is)
Frequently asked questions
What is a SAFE note?
A SAFE (simple agreement for future equity) is a contract in which an investor funds a startup now in exchange for the right to receive shares later, usually when the company raises a priced round. Despite the nickname, it is not a debt note.
Who created the SAFE?
Y Combinator created the SAFE in 2013 and moved to the post-money SAFE as its standard in 2018.
What is a valuation cap on a SAFE?
The maximum company valuation at which the SAFE converts into shares. If the next round is priced above the cap, the SAFE investor converts at the cap and receives more shares.
Should a bootstrapped company use a SAFE?
Only if a priced round is plausible. If you plan to stay profitable and never raise again, a SAFE can remain unconverted and complicate a sale; read its acquisition terms carefully.
Related terms
Keep reading
Maker examples are paraphrased from the cited sources and from each maker's IndieMakerList profile; revenue is self-reported unless marked verified. Spotted an error? Tell us.