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What is a SAFE

Full name: Simple Agreement for Future Equity

Also known as: post-money SAFE

Definition

A SAFE (simple agreement for future equity) is a contract where an investor pays now and gets shares in the next priced round, with no valuation set today.

Why it matters

A SAFE lets a young company take money quickly without agreeing on a valuation, which saves time and legal work at the earliest stage.

Common mistakes

Treating a SAFE as free money and ignoring the dilution it brings when it converts.

Related terms

Worked exampleIllustration

A ₪500,000 SAFE with a ₪5,000,000 cap

SAFE, main terms

  • Purchase amount₪500,000
  • Post-money valuation cap₪5,000,000
  • DiscountNone
  • Converts inThe next priced equity round
  • Interest and maturity dateNone

Before signing

Adapt the US form with a lawyer, and ask your accountant how the SAFE is treated for tax.

Steps

  1. Today the investor pays ₪500,000. No valuation is set, and the cap table does not change yet.Cash in

  2. The next priced round comes at a ₪12,000,000 pre-money valuation, above the cap, so the SAFE converts at the cap.The cap applies

  3. The SAFE investor's percentage at conversion is the amount divided by the post-money cap.500,000 ÷ 5,000,000 = 10%

  4. The founders' percentage falls by that 10% first, and the new round's investor then dilutes everyone again.Two dilutions

A SAFE postpones the price, not the dilution.

Illustration

When the cap bites

The round is priced at ₪12,000,000, above the ₪5,000,000 cap, so the SAFE converts at the cap: ₪500,000 ÷ ₪5,000,000 = 10%. The founders keep 90% until the new investor dilutes everyone again.⁨Next round's pre-money, ₪ millions⁩05101520⁨Cap⁩⁨Next round⁩SAFE 10%⁨Founders 90%⁩⁨After conversion⁩

The round is priced at ₪12,000,000, above the ₪5,000,000 cap, so the SAFE converts at the cap: ₪500,000 ÷ ₪5,000,000 = 10%. The founders keep 90% until the new investor dilutes everyone again.

The SAFE's ₪500,000 buys no shares today. At the next priced round it converts at the cap or at the round's price, whichever is lower.

Definition

A SAFE is an investment contract created by Y Combinator for early funding. The investor pays now, and the SAFE converts into shares when the company raises its next priced equity round, with separate terms for a sale of the company or its dissolution. It is not a loan: YC's documents say a SAFE carries no interest and no maturity date. A valuation cap sets the highest valuation at which it converts, and a discount gives a percentage off the next round's price. YC standardised on the post-money SAFE in 2018, where the investor's percentage at the cap is the amount divided by the post-money valuation cap.

Why it matters

It postpones the price, not the dilution: every SAFE converts in the first priced round, and founders who stacked several meet all of them at once. YC's documents are US forms, so an Israeli company adapts them with a lawyer, and its accountant checks the tax side before signing.

Directly related: Equity, Dilution, Cap table.

Improvement tips

  • Model every SAFE's conversion on a fully diluted cap table before you sign the next one.
  • Keep the caps of your SAFEs consistent, so the first priced round does not mix many different prices.
  • Tell early employees how SAFE conversion will change the cap table.
  • Adapt the YC form with an Israeli lawyer, and have your accountant check the tax treatment before signing.

Common mistakes

  • Stacking many SAFEs with different caps, which complicates the first priced round.
  • Using the old pre-money SAFE form without noticing that YC standardised on the post-money SAFE in 2018, which changes who absorbs later SAFEs.
  • Calling a SAFE a note or a loan. It has no interest and no maturity date.

Related terms

StartupsBeginner

Equity

Equity is ownership of a company, measured in shares and percent. On a balance sheet the same word means book equity: what the business owns minus what it owes.

StartupsIntermediate

Dilution

Dilution is the fall in existing shareholders' percentage of a company when it issues new shares. The percentage drops, while the stake's value can rise.

StartupsIntermediate

Cap table

A cap table (capitalization table) shows who owns how many shares and options in a company, and what percentage each holds on a fully diluted basis.

StartupsAdvanced

Term Sheet

A term sheet is a short, mostly non-binding document with the key terms of an investment, such as amount, valuation, control and liquidation preference.

StartupsIntermediate

Pre-money Valuation

Pre-money valuation is the agreed value of a company just before new investment comes in. It sets the price per share and how many shares the investor receives.

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Quick check

A post-money SAFE of ₪500,000 has a ₪5,000,000 valuation cap, and the next round is priced above the cap. What percentage does the SAFE investor get?

Choose an answer

Frequently asked questions

Do I need to understand SAFEs before I raise money?
If you plan to raise early money from angels, yes. A SAFE is one of the most common ways to do it, and its terms decide how much of the company it will cost later.
When does a SAFE become relevant?
At pre-seed or seed, when you raise from angels or an accelerator before anyone sets a price for the company.
Should I use the YC templates?
YC's current documents are US forms: post-money SAFEs with a valuation cap only, a discount only or neither (the MFN version), plus a pro rata side letter and a user guide. Israeli law firms point out the US governing law and adapt them for Israeli companies. Use them as a starting point, not as a form to fill in. Educational material, not legal or tax advice. Check your own case with a lawyer or an accountant.
How does a SAFE affect early planning?
It lets you raise without weeks of valuation talks. In return you must track every SAFE, because they all convert together in the first priced round.
Why would a company with revenue use a SAFE?
For a quick bridge before a priced round, when speed matters more than setting a price now.
How do I model my SAFEs' conversion?
For each post-money SAFE that converts at its cap, divide the amount by the cap to get its percentage, add them all to the fully diluted cap table, then model the new round on top.
What goes wrong with too many SAFEs?
In the first priced round they all convert at once, and the founders discover a dilution larger than it felt while they signed them one by one.
What are the cap and the discount?
The valuation cap is the highest valuation at which the SAFE converts, so the investor never pays more than that. The discount is a percentage off the price of the next round. A SAFE may have one, the other or neither.
What is a SAFE in simple words?
An investor gives you money today and gets shares in your next priced round, at a price set then, with a ceiling agreed today.
Is a SAFE a loan?
No. YC's documents describe it as neither debt nor a loan, with no interest and no maturity date, and it is not stock either until it converts. The Israel Tax Authority has published a position on how SAFEs are classified for tax, and your accountant checks whether yours meets its conditions. Educational material, not legal or tax advice. Check your own case with a lawyer or an accountant.
Do I need an accountant for SAFE agreements?
Yes, before signing. How a SAFE is booked and taxed matters for the company and for the investor. Educational material, not legal or tax advice. Check your own case with a lawyer or an accountant.
Will issuing a SAFE cost my business cash?
No cash leaves the company, apart from legal fees. The cost is the shares the SAFE turns into later.

Sources: Y Combinator, SAFE documents and SAFE User Guide (ycombinator.com/documents), read September 2026

Last reviewed: 2026-09-24

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