Definition
SAFE Note
A SAFE (Simple Agreement for Future Equity) is an instrument by which an investor gives a startup money now in exchange for equity in a future priced round.
A SAFE is not debt — it has no interest or maturity — but a right to shares when the next priced round happens, usually with a valuation cap and/or a discount. It speeds up early fundraising by deferring the hard task of setting a valuation. SAFEs were popularised by US accelerator Y Combinator.
In India, plain US-style SAFEs are not directly recognised, so founders often use instruments like CCPS or convertible notes, or an 'iSAFE' variant, to achieve a similar effect within FEMA and Companies Act constraints. The valuation cap and discount drive how much the SAFE holder gets when it converts.
Related terms
- Convertible NoteA convertible note is short-term debt that converts into equity at a future financing round, typically at a discount or valuation cap.
- Valuation CapA valuation cap is the maximum valuation at which a convertible note or SAFE converts into equity, protecting early investors if the startup's value soars.
- Discount (Convertible)A conversion discount lets a convertible note or SAFE convert into equity at a reduced price compared with the next round's investors.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.