A “Simple Agreement for Future Equity” (SAFE) is a financing instrument that is designed to simplify the process of raising capital for startup companies. It is similar to a convertible note in that it allows investors to provide capital to a company in exchange for the right to receive equity at a later date, usually when the company raises a subsequent round of financing or achieves a liquidity event.

One key difference between a SAFE and a convertible note is that a SAFE does not accrue interest or have a maturity date, meaning that the investors do not have a guaranteed payout in the event that the company does not achieve certain milestones. Additionally, SAFEs are generally simpler to draft and execute than convertible notes, making them a more attractive option for early-stage companies that are looking to raise capital quickly.

A SAFE is often considered a more founder-friendly way of raising capital as SAFEs are simpler to use and don’t have interest payments. However, on the other side, SAFEs do not have any maturity date which means investors don’t have guaranteed return of their investment.

View Full Answer Page: What is a SAFE (Simple Agreement for Future Equity)?