A Simple Agreement for Future Equity (SAFE) is a type of investment instrument that is similar to a convertible note. It is often used in early stage financing for startups, where the value of the company may be uncertain and a traditional equity investment may not be feasible.
Like a convertible note, a SAFE is a contract between an investor and a company that allows the investor to provide funding to the company in exchange for the potential to receive equity in the future. However, unlike a convertible note, a SAFE does not accrue interest or have a fixed maturity date. Instead, the investor’s potential equity is tied to a future financing round, such as a Series A round of funding.
The terms of a SAFE are typically less complex than those of a convertible note, making it a popular choice for early stage financing. However, like convertible notes, SAFEs carry some risk for the investor, as there is no guarantee that the company will be successful and the investor may not receive any equity in the future.