Last updated: 2 November 2026
A SAFE is a short agreement that gives an investor the right to future equity. You pick a variant, fill in the amount and cap or discount, sign it, and it converts into shares on a priced round, liquidity event, or dissolution.
What is a SAFE?
A SAFE is a Simple Agreement for Future Equity, created by Y Combinator in 2013 and updated in 2018 from pre-money to post-money. Unlike convertible notes, it carries no interest rate and no maturity date. It is a short document that gives an investor the right to receive equity later, rather than shares on the day of investment.
Y Combinator’s forms are for US companies, and this page is information rather than legal advice. UK readers should not assume a SAFE is tax-advantaged. SAFEs often cause problems for SEIS or EIS, so check HMRC guidance or take advice before relying on any tax treatment.
In plain terms, a SAFE lets a startup raise money quickly without setting a price for the shares today. The price is settled later, when a priced round fixes the company’s valuation. That delay is the whole point of the instrument.
Which SAFE should you pick?
Y Combinator offers several standard variants, and the choice depends on what you want to give the investor.
A valuation cap with no discount means the valuation cap is the highest valuation at which the SAFE converts. Ownership sold equals the investment divided by the cap. A discount with no cap gives the investor a lower price than the next priced round; on a 20% discount SAFE the investor pays 20% less than new investors.
An MFN has no cap or discount and automatically takes the cap or discount of any SAFE issued later. A pro rata side letter is optional and separate; keep the SAFE unmodified and put agreed rights in a separate side letter.
| SAFE type | Term | Worked figure |
|---|---|---|
| Valuation cap, no discount | Ownership = investment ÷ cap | £250,000 ÷ £5,000,000 = 5.0% |
| Discount, no cap | Investor pays 20% less | Round price × 80% |
| MFN | Takes later cap or discount | Not stated |
| Pro rata side letter | Separate document | Optional |
The table above shows the main choices and the arithmetic you can run before signing. It does not replace reading the variant you select.
In plain terms, a cap protects the investor if the company’s value rises sharply, while a discount rewards early risk with a cheaper price. An MFN keeps things simple when you expect to issue further SAFEs later, and a side letter keeps the standard document clean.
How do you fill in the terms?
You choose the amount invested, the valuation cap on a post-money basis or the discount rate, and both the company and the investor sign. These blanks are our description, derived from the variants above. Do not edit the standard text; use a side letter for agreed rights.
As a worked example, £250,000 on a £5,000,000 post-money cap equals 5.0% of the company before the priced round. The arithmetic is straightforward: investment divided by cap gives £250,000 ÷ £5,000,000 = 0.05, which is 5.0%. That 5.0% is the ownership the investor locks in before the priced round begins.
Keep the document unmodified so investors can compare it with the standard form. In plain terms, the blanks are small, but the number you write in the cap blank sets the ownership percentage the investor will receive. A small change in the cap changes that percentage directly.
When does a SAFE convert?
A SAFE converts on an equity financing such as Series Seed, A, B or C, on a liquidity event such as an acquisition or IPO, or on dissolution. It converts at the lower of the cap price and the discount price, where the discount price is the priced round price multiplied by the discount.
In a worked example, the cap is £5m post-money and the round prices the company at £10m pre-money. The cap price is lower, so the SAFE converts at the cap price. With a 20% discount only, the price equals 80% of the round price. The arithmetic for the discount route is round price × (1 − 0.20) = round price × 80%.
These two routes show why the cap and discount must both be modelled before you sign. In plain terms, the investor gets whichever route is cheaper for them, so the founder’s dilution is the larger of the two results.
What does it do to your cap table?
On a post-money SAFE, ownership is fixed by investment divided by the post-money cap, so all SAFEs together are visible before the round. Conversion essentially provides the SAFE holder with anti-dilution protection relative to other SAFEs.
You should track each SAFE on the cap table with investor, amount, cap, discount and pro forma conversion. This keeps the total converted ownership visible and helps you avoid surprises when the priced round closes. Promise.legal’s cap table guide is a useful reference for that tracking.
In plain terms, a post-money SAFE fixes the investor’s percentage at signing, which makes the combined ownership of all SAFEs easy to see before any priced round begins.
Mistakes to avoid
Do not stack many SAFEs with different caps without modelling the combined effect. Avoid side-letter promises that are not tracked on the cap table. Do not lose sight of the total converted ownership. Link these checks to your dilution and cap table pages so the model stays current.
A SAFE is simple to sign, but its effect on ownership is not simple once several have been issued. In plain terms, each SAFE looks small on its own, but together they can take a large share of the company. Model the whole stack before you sign the next one.
Frequently asked questions
Is a SAFE debt?
No. A SAFE is an agreement for future equity. It has no interest rate and no maturity date, unlike a convertible note.
Can I edit the standard SAFE text?
No. Do not edit the standard text. Put agreed rights in a separate side letter and keep the SAFE unmodified.
When does a SAFE convert into shares?
It converts on an equity financing, a liquidity event such as an acquisition or IPO, or dissolution. It converts at the lower of the cap price and the discount price.
How do I work out ownership from a cap?
Divide the investment by the valuation cap. For example, £250,000 on a £5,000,000 post-money cap equals 5.0%.
Are SAFEs tax-advantaged in the UK?
No assumption should be made. SAFEs often cause problems for SEIS or EIS, so check HMRC guidance or take advice.
Sources
Figures and prices were checked on 2 November 2026; check the linked sources before relying on them. This article is general information, not tax, legal or investment advice.
