What is a SAFE note? A founder's guide
A SAFE (simple agreement for future equity) is a short contract in which an investor funds a startup now in exchange for the right to receive shares later. It usually converts into shares when the startup raises a priced equity round. A SAFE is not a loan: it has no interest rate and no maturity date.
This guide explains how SAFEs convert, what a post-money valuation cap means, and how SAFEs differ from convertible notes. It also walks through ikigai Launchpad's published investment terms. It is general information, not legal, tax, or investment advice.
Review program termsHow does a SAFE work?
The investor sends money now and signs one document. No shares are issued yet. When the startup later raises a priced equity round, the SAFE converts into preferred shares, usually on terms set by a valuation cap.
What is a valuation cap?
The valuation cap is the highest company valuation at which the SAFE converts. If the priced round values the company above the cap, the SAFE converts at the cap. That gives the early investor a better price than new investors in that round.
What does post-money mean?
On a post-money SAFE, the cap is the company's valuation after the SAFE money is included. Ownership sold equals the investment divided by the post-money valuation cap. Founders can calculate how much of the company each SAFE sells before the priced round. Y Combinator has used the post-money SAFE as its standard since 2018 and describes pre-money SAFEs as legacy.
When does a SAFE convert?
A SAFE has no maturity date. It is designed to end when the investor receives stock, typically in an equity financing, or through other events defined in the document. The new money in that priced round then dilutes everyone, including the converted SAFE holders.
Source: Y Combinator's SAFE overview and SAFE financing documents. Always read the specific document you are asked to sign.
SAFE vs convertible note vs priced round
The main difference is that a convertible note is debt. It accrues interest and has a maturity date. A SAFE has neither, and a priced round sells shares at a set price immediately.
Scroll the table sideways to read all columns.
| Feature | SAFE | Convertible note | Priced round |
|---|---|---|---|
| What it is | Convertible security; not debt | Debt that converts to equity | Shares sold now |
| Interest | None | Accrues | None |
| Maturity date | None | Yes; can force repayment or default | Not applicable |
| Price per share set now? | No; set later using the cap or discount | No; set at conversion | Yes |
| Paperwork | One short document | Moderate | Most extensive |
| Order if the company winds down | Behind debt | Debt is repaid before equity | Preferred stock has liquidation priority |
Summarized from Y Combinator's SAFE, convertible note and priced round comparison. Specific documents can differ, so check the terms you are offered.
Worked example: $100,000 for 8%
ikigai Launchpad's published standard deal is a $100,000 USD investment for 8% through a SAFE, with no program fee on top. Here is how to read terms like these using post-money SAFE arithmetic.
What valuation does 8% imply?
On a post-money SAFE, ownership equals investment divided by the cap. Working backward, $100,000 divided by 8% is $1,250,000. Terms like these therefore correspond to a $1.25 million post-money valuation. This is arithmetic for illustration, not a statement of ikigai's document terms. The signed documents control.
What happens when you sign more SAFEs?
Post-money SAFEs add up. Y Combinator's example: five $100,000 SAFEs at a $5 million cap sell 10% of the company in total, not 2%. Keep a running total of everything you have sold before signing the next SAFE.
Does the 8% stay 8% forever?
No. Post-money SAFE ownership is measured before the new money in the next priced round. When that round closes, the new investors' shares dilute founders and converted SAFE holders alike.
Sources: ikigai Launchpad program FAQ and Y Combinator's SAFE guidance.
What should founders check before signing a SAFE?
Usually the valuation cap is the main term to negotiate. These questions catch the details that change what you are actually selling.
- Is the cap post-money or pre-money? Post-money lets you calculate ownership sold right away.
- What is your running total? Add every SAFE you have signed before agreeing to the next one.
- Does the SAFE include a most-favored-nation (MFN) clause? An MFN holder can take better terms from SAFEs you issue later, so signing order matters.
- Have you issued any convertible notes? Notes are debt and sit ahead of SAFEs if the company is sold or wound down.
- Is there a pro rata side letter? It can give the investor a right to invest in a later round.
- Does the form match where your company is incorporated? Y Combinator publishes separate SAFE versions for US companies and for companies formed in Canada, the Cayman Islands and Singapore.
If you are not yet incorporated, decide on your company structure before signing. ikigai Launchpad says accepted founders typically need a US entity to receive funding. Read Startup incorporation 101 and confirm the details with a lawyer licensed where your company is formed.
SAFE note FAQs
What does SAFE stand for?
SAFE stands for simple agreement for future equity. Y Combinator introduced it in late 2013 as a simpler alternative to convertible notes for early-stage fundraising.
Y Combinator SAFE documentsIs a SAFE a loan?
No. A SAFE is not debt: it has no interest rate and no maturity date. It is also not stock until it converts, typically into preferred shares when the startup raises an equity round.
Y Combinator SAFE overviewHow much of my company does a post-money SAFE sell?
On a post-money valuation cap SAFE, ownership sold equals the investment amount divided by the post-money valuation cap. For example, $100,000 at a $1.25 million post-money cap is 8%. Several SAFEs add together.
Y Combinator SAFE comparisonWhat if a SAFE never converts?
A SAFE has no maturity date, so it can stay outstanding without extension. It ends when the investor receives stock in an equity financing or through another event defined in the document, such as a sale or dissolution. Read those clauses in your specific SAFE.
Y Combinator SAFE overviewWhat are ikigai Launchpad's investment terms?
ikigai Launchpad's published standard deal is a $100,000 USD investment for 8% through a SAFE. The program says there is no program fee on top and accepted founders typically need a US entity to receive funding. Check current terms on the program page.
ikigai Launchpad program FAQPreparing to raise your first round?
Review ikigai Launchpad's terms, then prepare with our accelerator application guide and Startup incorporation 101.
Review programPrepared by 886 Studios. Sources reviewed . This guide is educational, not legal, tax, or investment advice. Have a qualified lawyer review any financing document before you sign.