What is a SAFE?

Y Combinator introduced the SAFE in 2013. It is not a loan: it has no interest or maturity date, which sets it apart from a convertible note. Terms usually include a valuation cap or a discount, and only sometimes both. Because conversion comes later, several SAFEs can add up to more dilution than founders expect.

Say an investor puts $100,000 into a SAFE with a $5 million valuation cap. At a later round priced above the cap, it converts as if the startup were worth $5 million.

It lets startups raise money quickly without agreeing a valuation, though the final ownership split may not be settled until the priced round.