SAFE (Simple Agreement for Future Equity)
An instrument that converts to equity at a future priced round, without being debt.
A SAFE gives an investor the right to shares in a future priced round in exchange for money now. Unlike a convertible note it carries no interest and no maturity date, so it cannot force a default.
SAFEs are defined by a valuation cap, a discount, or both. The cap sets the maximum valuation at which the money converts; the discount gives a percentage reduction against the round price. Where both apply, the investor takes whichever is better for them.
Post-money SAFEs, standard since 2018, fix the investor's ownership percentage at signing. Founders frequently underestimate total dilution when stacking several — each new SAFE dilutes the founders rather than the earlier SAFE holders.