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A SAFE note, or Simple Agreement for Future Equity note, is an investment instrument for early-stage investors. This article will explain what is SAFE and how it works, so you can make an informed decision about investing in one.
A SAFE is a Simple Agreement for Future Equity. SAFEs were created by Y Combinator in 2013 as a way to streamline seed investments. Unlike convertible notes, which are loans that convert to equity at a later date, SAFEs don’t accrue interest or have scheduled maturity dates.
Instead, they give investors the right to convert their investment into equity in the company at a future date, usually when the company raises additional funding or liquidates equity.
SAFEs are similar to convertible notes in a way that they convert into equity at a later date, but they have simpler terms and are not debt instruments.
Overall, SAFE agreements are designed to be a simple and flexible way for early-stage startups to raise capital, while providing certain protections and benefits to the investor, without the complexity and potential risks associated with traditional debt financing.
There’re a few things you need to notice in a SAFE:
SAFEs have several benefits for both investors and startups. Investors can benefit from SAFEs in the following ways:
Meanwhile, SAFEs offer founders the following benefits:
While SAFE agreements have many benefits, there are also some risks to consider for both startups and investors.
Overall, a SAFE can be a reasonable way to invest in an early-stage company. However, it is important to understand the risks involved and evaluate whether it is the right choice for their specific needs and circumstances.
There are a few key differences between SAFEs and convertible notes:
Overall, both SAFE and convertible note investments have their own advantages and disadvantages, and the choice between the two will depend on the specific needs and circumstances of the startup and the investor. SAFE investments may be more flexible and streamlined, while convertible notes may offer more investor protections and a clearer path to conversion into equity.
Rundit is a portfolio management tool that can help you manage a variety of investment vehicles like Convertible Notes and SAFEs. With Rundit’s investment dashboard, you can track your SAFE investments in real-time, including the status of each investment and its conversion triggers. Your portfolio company performance is also visualized in charts and dashboards which illustrate the company’s growth trajectory, trends and opportunities.
Make the most of your SAFEs investment with the help of Rundit, talk to our expert today to learn more.
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