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How The SAFE Has Changed And It What It Means For Your Company's Equity


In 2013, Y-Combinator introduced an investment document for startup companies called the Simple Agreement for Future Equity (“SAFE”). As a practical explanation, a SAFE is a contract between a company and an investor that will grant the investor equity in the future, upon the occurrence of certain triggering events.

The SAFE was created as a form of a "bridge" investment vehicle for startup companies — a document that is intended to be quick, simple, cost-effective and to provide companies with capital to push toward an equity round of financing. Over the last five years, the SAFE has evolved to be more widespread and is not solely used as a bridge round of financing. The amount of money invested on SAFEs has increased to the point that it often more closely resembles the size of an equity round of financing. As a result, in September of 2018, Y-Combinator modified the form SAFE in order to accommodate the evolving use of the document.

While the new SAFE has a plethora of modifications to the previous SAFE document, this article touches on the most consequential of changes — the use of a valuation cap. The previous version of the SAFE incorporated a valuation cap that was presented as a pre-money valuation of the company. In other words, the valuation cap was intended to show the value of the company prior to a SAFE converting to equity.

Read the full article in Forbes here.

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