SAFE Note

A SAFE note (Simple Agreement for Future Equity) is a financial instrument used by startups to raise capital from investors without immediately determining the company’s valuation. It was introduced by Y Combinator in 2013 as a simpler alternative to convertible notes.

How SAFE Notes Work:

  1. Investor Agreement – An investor provides funding in exchange for the right to receive equity in the future.
  2. Trigger Event – SAFE notes convert into shares when a qualifying event occurs, such as a priced equity round or the sale of the company.
  3. Valuation Cap & Discount Rate – Investors may receive shares at a discounted price or based on a valuation cap, ensuring they get favorable terms compared to later investors.
  4. No Interest or Maturity Date – Unlike convertible notes, SAFE notes do not accrue interest and do not have a repayment deadline.

Advantages of SAFE Notes:

  • Simple & Cost-Effective – Less paperwork and legal complexity compared to traditional funding agreements.
  • Flexible for Startups – Allows startups to raise funds without setting a valuation too early.
  • Investor-Friendly – Provides early investors with potential upside through valuation caps and discounts.

Risks & Considerations:

  • Dilution – Founders may experience dilution when SAFE notes convert into equity.
  • Uncertain Timing – Investors must wait for a triggering event before receiving shares.
  • Legal & Tax Implications – SAFE notes may have different tax treatments depending on jurisdiction.

Written by Swedish Ventures, Rolf Olsson. Remarks to this article could be sent to glossary@swedishventures.se

ASO: DD-01-06