SAFE Forms: US & International Templates for Founders

A SAFE (Simple Agreement for Future Equity) is a financing contract that gives an investor the right to purchase equity in your company at a future date, typically in conjunction with a priced funding round. Unlike a convertible note, a SAFE is not debt; it has no interest rate or maturity date. This simplicity has made it a go-to instrument for seed-stage fundraising, allowing startups to secure capital quickly and defer complex valuation discussions.

The SAFE was created in 2013 by the accelerator Y Combinator to standardize and simplify the earliest stages of startup fundraising. The goal was to create a balanced document that was faster and cheaper to use than convertible notes or priced equity rounds. In 2018, Y Combinator updated the standard agreements to a Post-Money SAFE model. This change was made to provide founders and investors with greater clarity on ownership and dilution from the outset, addressing a common point of confusion with the original Pre-Money SAFE.

Both founders and investors benefit from the SAFE's streamlined nature:

For Founders: SAFEs are fast to close, involve significantly lower legal fees than priced rounds, and contain no burdensome terms like interest or repayment deadlines. This allows founders to focus on building the business rather than on a protracted fundraising process.

For Investors: The standardized format reduces negotiation time and legal costs. It provides a straightforward mechanism to invest in promising early-stage companies without needing to set a definitive valuation, which is often difficult for pre-revenue startups.

Y Combinator provides several standard SAFE templates to suit different negotiation outcomes. The key evolution has been the shift from "pre-money" to "post-money" SAFEs. A pre-money SAFE calculates the investor's ownership based on the valuation before their investment, while a post-money SAFE calculates it based on the valuation after their investment (and all other SAFEs converting in the round) are accounted for. The post-money version provides founders with a clearer picture of their dilution upfront.

This was the first version released by Y Combinator. It calculated investor ownership based on the company's pre-money valuation in the subsequent priced round. While foundational, it has been largely superseded by the post-money versions due to the ambiguity it could create around founder dilution, especially when multiple SAFEs were raised.

This is one of the most common forms. It sets a maximum valuation at which the investor's money will convert into equity. It protects the investor's potential upside if the company's valuation soars in the next round.

This form offers the investor a discount on the share price of the future priced round. It's a way to reward the investor for their early risk without setting a valuation cap.

This version gives the investor the best of both worlds. Their investment will convert at whichever term—the valuation cap or the discount—results in a lower price per share, and therefore more equity.

Y Combinator makes all its standard legal documents, including the latest post-money SAFE templates, available for free on its website. Founders should always use the official, unmodified versions as a starting point to ensure they are working from the market standard. You can find them at Y Combinator Documents.

While the YC SAFE is designed for US Delaware C-Corporations, its principles are used globally. However, founders of non-US companies cannot simply use the US form without modification. Local corporate laws, securities regulations, and tax rules necessitate careful adaptation.

Corporate Law: The legal structure of a UK private limited company or a Canadian corporation is different from a Delaware C-Corp. The mechanism for issuing future equity must comply with local law.

Tax Implications: Many countries offer tax incentives for early-stage investing (e.g., the UK's SEIS/EIS schemes). A standard US SAFE may not be structured to allow investors to claim these benefits. The agreement often needs to be drafted as an "Advance Subscription Agreement" or similar instrument.

Governing Law: A standard YC SAFE is governed by Delaware law. For a company with no US nexus, it may be more practical and cost-effective to have the agreement governed by local law (e.g., England and Wales for a UK company).

The following table outlines common modifications for popular jurisdictions outside the US.

| Jurisdiction | Common Modifications & Considerations | Local Equivalents | | :--- | :--- | :--- | | United Kingdom | Must be carefully structured to comply with UK company law. May be drafted as an "Advance Subscription Agreement" (ASA) to be compatible with tax relief schemes like SEIS/EIS. Governing law is typically England and Wales. | SeedFAST (by SeedLegals) | | Canada | Many Canadian startups that plan to raise US venture capital will incorporate a US Delaware C-Corp and use standard YC SAFEs. If remaining a Canadian entity, the SAFE must be adapted by local counsel to align with provincial corporate statutes. | Modified SAFEs, Convertible Debentures | | Singapore | The legal framework is similar to the US, making SAFEs adaptable. However, local versions often specify Singapore as the governing law. | VIMA SAFE (by Venture Capital Investment Model Agreements) | | European Union | Varies significantly by country. Civil law systems can make direct SAFE adoption complex. Local lawyers often create country-specific convertible instruments that achieve a similar economic outcome. | Country-specific convertible loan agreements or equity warrants. |

If you are a non-US founder, discuss these points with your legal counsel: 1. Governing Law: Should your agreement be governed by US law (if you plan to 'flip' into a US entity) or your home jurisdiction? 2. Tax Efficiency: Ensure the structure is optimized for both the company and its local investors. 3. Currency: Specify the investment currency to avoid ambiguity. 4. Securities Compliance: Confirm that the offering complies with local securities laws, which may be stricter than in the US for early-stage fundraising.

Several organizations and law firms have created localized versions of the SAFE. For example, Cooley GO provides a suite of financing documents, including SAFEs adapted for UK and Singaporean companies. In Singapore, the Venture Capital Investment Model Agreements (VIMA) initiative offers a set of standard documents, including a Singapore-specific SAFE. These resources are excellent starting points but should always be reviewed by a qualified local lawyer.

Understanding the core components of a SAFE is critical before you send one to an investor. These terms define how and when your investor's money turns into company stock.

| Term | Valuation Cap SAFE | Discount SAFE | Cap & Discount SAFE | | :--- | :--- | :--- | :--- | | Valuation Cap | Yes | No | Yes | | Discount Rate | No | Yes | Yes | | Conversion | Converts at the lower of the capped valuation or the priced round valuation. | Converts at a discount to the share price of the priced round. | Converts at the price that is most favorable to the investor (either from the cap or the discount). | | Best For Investor | When the company's valuation is expected to grow significantly. | When valuation growth is uncertain or expected to be moderate. | Provides downside protection and upside participation. | | Best For Founder | When you can negotiate a high cap and want to reward early investors without a discount. | When you want to avoid setting a valuation ceiling early on. | Often a market-standard compromise to secure investment. |

The Valuation Cap is the most important term in a capped SAFE. It sets the maximum valuation at which an investor's funds will convert into equity, regardless of the higher valuation of the future priced round. It rewards early investors for taking a risk before a valuation is formally established.

Example: You raise $100,000 on a SAFE with a $5 million valuation cap. A year later, you raise a Series A at a $10 million pre-money valuation. The SAFE investor's money converts at the $5 million cap, not the $10 million valuation. They get shares equivalent to a 2% stake ($100k / $5M post-money cap), rather than the 1% they would have received at the round's valuation ($100k / $10M).

The Discount Rate offers the investor a percentage discount on the share price paid by investors in the future priced round. This is another way to compensate early investors for their risk.

Example: You raise $100,000 on a SAFE with a 20% discount. In your Series A, new investors pay $1.00 per share. The SAFE investor's money converts at a price of $0.80 per share ($1.00 (1 - 0.20)). They receive 125,000 shares ($100,000 / $0.80), whereas a new investor putting in the same amount would only receive 100,000 shares.

Pro Rata Rights give an investor the option to purchase additional shares in the subsequent priced equity round to maintain their ownership percentage. In the standard YC SAFE, these rights are not included in the main agreement but are granted via an optional side letter. This keeps the SAFE itself simple while allowing founders to offer this right to major investors.

A Liquidation Preference determines the payout order in a sale of the company or a shutdown (a liquidation event). SAFE holders get their investment back before any common stockholders (like founders and employees) receive proceeds. However, they typically do not have a "participating" preference, meaning they choose between getting their money back (e.g., 1x their investment) or converting into common stock to share in the upside with other stockholders—whichever is greater.

A SAFE is designed to convert into equity upon a specific trigger, known as a Conversion Event. This is almost always a priced equity financing (e.g., a Series A round) where the company sells a new series of preferred stock at a set price per share. When this event occurs, the SAFE automatically converts into shares of stock based on the terms (valuation cap and/or discount) of the agreement.

Selecting the appropriate SAFE template depends on your startup's stage, leverage, and the expectations of your target investors. While all post-money SAFEs are based on the same principles, the choice between a cap, a discount, or both can have a significant impact on your cap table.

At the earliest stages (pre-seed/seed), when a formal valuation is difficult to justify, SAFEs are ideal. If you have significant traction or investor interest, you may have the leverage to negotiate a higher valuation cap or offer only a discount. Conversely, if you are a first-time founder with a pre-product idea, investors will likely expect more favorable terms, such as a lower cap and a discount.

Use a Valuation Cap when there is a shared understanding of a reasonable valuation range, but you want to avoid a priced round. It provides investors with clear upside potential. Use a Discount when you want to avoid anchoring to a specific valuation number entirely. The most common approach is the Cap and Discount SAFE, as it has become the market standard and satisfies the core needs of most early-stage investors.

While SAFEs are standardized, they are not one-size-fits-all. Any deviation from the standard YC forms should be done with caution. It is crucial to have any SAFE, especially a modified or international version, reviewed by experienced startup legal counsel. A lawyer can help you understand the long-term dilution impact and ensure the terms are fair and compliant.

Using SAFEs effectively requires understanding not just the terms, but also the potential long-term consequences. Avoiding common mistakes can save you significant dilution and headaches down the road.

The biggest pitfall is not understanding how multiple SAFEs stack up. Because post-money SAFEs calculate ownership based on all converting capital, raising many small SAFEs can lead to more dilution than anticipated. Model out the conversion of all your SAFEs before signing a term sheet for your priced round. Be wary of unusually low valuation caps or high discounts that are off-market, as they can lead to excessive dilution.

Always be clear about which version of the SAFE you are using (i.e., post-money). Use a cap table management tool to track your SAFEs and model their conversion. When speaking with new investors for your priced round, provide a clear summary of all outstanding SAFEs and convertible instruments. This transparency builds trust and avoids surprises during due diligence.

The 'S' in SAFE stands for 'Simple,' not 'substitute for legal advice.' A qualified startup lawyer is essential. They can advise on which SAFE is appropriate, review terms offered by investors, handle any necessary international adaptations, and ensure all documents are executed correctly. Investing in good legal advice early is one of the best ways to protect your company's future.

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