SAFE (Simple Agreement for Future Equity)

The SAFE (Simple Agreement for Future Equity) is a seed financing instrument that lets an investor put money into a young company in exchange for the right to receive shares at a later financing round. Popularised by the Y Combinator accelerator, it is meant to be simple and quick: it is neither debt nor immediately equity, but a promise to convert into shares at a future date.

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Unlike a Convertible bonds, the SAFE in principle bears neither interest nor a repayment maturity: its conversion is triggered by an event, most often a significant fundraising. Two parameters set its economics: the valuation cap, or maximum Pre-money valuation at which the investor will convert, and the discount applied to the price of the next round. These mechanisms reward early risk-taking by offering an advantageous entry price.

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Concretely, a seed investor puts in 200,000 CHF via a SAFE with a 4 MCHF cap and a 20% discount. At the next round raised at 6 MCHF, it converts at the more favourable of the two terms, here the 4 MCHF cap, obtaining more shares than an investor entering at the round price.

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The SAFE defers the valuation negotiation to the next financing round, which speeds seed investment but can create dilution that is hard for the founder to anticipate. In France, equivalent instruments such as the BSA Air (French SAFE equivalent) take up its logic while adapting it to local law.