Simple Agreement for Future Equity
A SAFE — or Simple Agreement for Future Equity — is a financial instrument that was first introduced by Y Combinator in 2013. Since that time, SAFEs have become the most common instruments used in early-stage venture capital investments.
With SAFEs, founders receive capital from investors in exchange for a promise of shares of their company in the future. SAFEs are designed to be less complex than other instruments, which can help startups minimize legal costs when raising their earliest rounds of capital.
A SAFE often has both a valuation cap and a discount rate, which shape how the SAFE will convert into equity for investors down the road. Let’s explain what those terms mean.
Another instrument that startups sometimes use when raising capital is a convertible note, which is a form of debt that is intended to convert into equity. Let’s explore the differences and similarities between a SAFE and a convertible note.
UB’s Cultivator program uses SAFEs when making pre-seed investments of $100,000 in Western New York-based startups. Our standard terms for these investments are a valuation cap of $2 million and a 20% discount rate. We have the flexibility to raise our valuation cap as high as $5 million under certain circumstances.
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