What Is a SAFE Note?

SAFE notes (or Simple Agreement for Future Equity) are a simpler option than convertible notes. SAFE notes are documents that early-stage companies use to help raise pre-seed or seed capital. Essentially, a SAFE note acts as a legally binding promise to allow an investor to purchase a specified number of shares for an agreed-upon price at some point in the future. In simple terms, an investor will give a startup money and receive a promise to get equity, usually at a predetermined price when certain milestones are met.

Key Elements in a SAFE Note: Valuation Cap and Discount

SAFE notes have a few main terms that change how they finally convert to company shares, and they are:

  1. Valuation cap, no discount
  2. Discount, no valuation cap
  3. Valuation cap and discount
  4. MFN, no cap, no discount

To read about Pros & Cons of SAFEs and about comparison between SAFEs and Convertible notes follow the link below: