SAFE Agreement Template 2025
Professional SAFE agreement template with comprehensive guide. Learn what a SAFE agreement is, how to fill it out, and download our template designed by legal experts for startup fundraising, seed rounds, and early-stage investment.
Download TemplateWhat is a SAFE Agreement?
A SAFE (Simple Agreement for Future Equity) is an investment instrument created by Y Combinator that grants investors the right to receive equity in a company at a future date, typically during a subsequent financing round or liquidity event. SAFEs are designed to be simpler and more founder-friendly than convertible notes, allowing startups to raise capital quickly without determining a specific valuation or accruing interest. They represent a promise to provide equity in the future rather than immediate ownership.
SAFE agreements have become the standard instrument for early-stage startup fundraising, particularly for seed rounds and angel investments. They provide a way for founders to raise capital without the complexity of priced equity rounds while giving investors the potential for significant returns if the company succeeds. SAFEs defer the valuation discussion to a future financing round when the company has more operating history and clearer value indicators, making them ideal for very early-stage companies.
📋 Key Components of a SAFE Agreement
- Investment amount - the dollar amount being invested
- Valuation cap - maximum valuation for conversion purposes
- Discount rate - percentage discount on future round pricing
- Conversion events - triggers that convert SAFE to equity
- Pro rata rights - investor's right to participate in future rounds
- Most favored nation - protection against worse terms in future SAFEs
- Company and investor information - party identification and details
Types of SAFE Agreements
| SAFE Type | Valuation Timing | Conversion Mechanics | Dilution Impact |
|---|---|---|---|
| Pre-Money SAFE | Before new money | Converts before new round pricing | Dilutes all existing shareholders |
| Post-Money SAFE | After new money | Converts into post-money valuation | More predictable for founders |
| SAFE with Cap | Capped conversion | Maximum valuation protection | Limits investor downside |
| SAFE with Discount | Discounted pricing | Percentage off future round | Rewards early investment |
| SAFE with Cap + Discount | Dual protection | Better of cap or discount | Maximum investor protection |
Pre-Money vs. Post-Money SAFEs
- Pre-Money SAFE: Converts based on company valuation before the new financing round
- Dilution Timing: Pre-money SAFEs create dilution for all existing shareholders including founders
- Uncertainty: Final ownership percentage unknown until conversion
- Post-Money SAFE: Converts based on company valuation after new money is added
- Predictability: Founders know exact dilution from SAFE conversion
- Current Standard: Y Combinator now recommends post-money SAFEs
Valuation Cap Mechanics
- Cap Protection: Sets maximum valuation for SAFE conversion purposes
- Upside Participation: Investors benefit if company valuation exceeds cap
- Conversion Formula: SAFE converts at lower of cap or actual valuation
- Negotiation Point: Higher caps favor founders, lower caps favor investors
- Market Standards: Typical caps range from $2M to $20M for early stage
- No Cap Option: Some SAFEs have no valuation cap for founder-friendly terms
Discount Rate Provisions
- Early Bird Advantage: Rewards early investors with better pricing
- Standard Discounts: Typically range from 10% to 30%
- Conversion Benefit: SAFE converts at discounted price vs. new investors
- Market Rates: 15-20% discount is common for seed stage investments
- Combined with Cap: Investors get better of cap or discount protection
- No Discount Option: Some SAFEs rely solely on valuation caps
✅ SAFE vs. Other Investment Instruments
- SAFE: Simple, no interest, deferred valuation, equity conversion
- Convertible Note: Debt instrument, accrues interest, maturity date
- Priced Equity: Immediate ownership, requires valuation, voting rights
- KISS: Keep It Simple Security, similar to SAFE with variations
- Warrant: Right to purchase equity at fixed price
Essential SAFE Terms and Mechanics
Conversion Events and Triggers
- Equity Financing: Conversion during qualified financing rounds above minimum threshold
- Liquidity Event: Conversion upon company sale, merger, or acquisition
- IPO Event: Conversion or cash payout upon initial public offering
- Dissolution Event: Distribution rights upon company dissolution or winding up
- Automatic Conversion: Certain events trigger mandatory conversion to equity
- Optional Conversion: Investor choice to convert in specific circumstances
Qualified Financing Parameters
- Minimum Amount: Threshold amount for qualifying financing (typically $1M+)
- Preferred Stock: Conversion typically into preferred shares not common stock
- Investor Approval: Some SAFEs require investor consent for conversion terms
- Price Per Share: Conversion calculated based on new round pricing
- Shadow Series: SAFEs may convert into separate series of preferred stock
- Participation Rights: Converted shares receive same rights as new round investors
Liquidation and Distribution Rights
- Liquidation Preference: Priority in distribution proceeds upon company sale
- Participation Rights: Right to receive both preference and pro rata distribution
- Distribution Formula: How proceeds are allocated between SAFE holders and shareholders
- Seniority: SAFE holders' position relative to other securities
- Threshold Events: Minimum proceeds required to trigger SAFE payments
- Cash vs. Stock: Form of consideration in liquidity events
Pro Rata Rights and Future Participation
- Pro Rata Rights: Right to maintain ownership percentage in future rounds
- Information Rights: Access to company financial information and updates
- Participation Period: Time limit for exercising pro rata rights
- Major Investor Threshold: Minimum investment to qualify for enhanced rights
- Transfer Restrictions: Limitations on transferring SAFE to third parties
- Board Rights: Board observation or participation rights for large investments
Most Favored Nation and Anti-Dilution
- MFN Clause: Automatic adjustment to better terms offered to future SAFE investors
- Term Protection: Ensures investor receives best available terms
- Retroactive Application: Better terms automatically apply to existing SAFEs
- Anti-Dilution Protection: Protection against down rounds and recapitalizations
- Weighted Average: Adjustment mechanism for anti-dilution calculations
- Broad-Based vs. Narrow-Based: Different methods for calculating adjustments
Corporate Actions and Adjustments
- Stock Splits: Adjustment for stock splits and stock dividends
- Recapitalizations: Treatment during corporate restructuring events
- Spin-Offs: Rights to securities in spin-off transactions
- Merger Treatment: Conversion or cash-out rights in merger transactions
- Amendment Procedures: Process for modifying SAFE terms
- Governing Law: Legal jurisdiction and applicable law provisions
⚠️ SAFE Agreement Considerations
- SAFEs may never convert if company doesn't raise future funding
- Multiple SAFEs can create complex cap table and dilution issues
- Valuation caps set expectations for future round pricing
- Pro rata rights may be difficult to exercise in practice
- Legal and tax treatment varies by jurisdiction
- Consider total SAFE amount and cumulative dilution impact
How to Fill Out a SAFE Agreement: Step-by-Step Guide
Determine: The type of SAFE and basic structure for the investment.
- Select pre-money or post-money SAFE structure
- Decide whether to include valuation cap
- Determine if discount rate should be included
- Choose combination of cap and discount if both desired
- Consider investor requirements and market standards
Specify: The investment amount and key valuation parameters.
- Enter the investment amount in dollars
- Set valuation cap amount if applicable
- Specify discount percentage if included
- Define minimum qualified financing threshold
- Establish conversion price calculation methodology
Establish: When and how the SAFE converts to equity.
- Define qualified financing parameters and thresholds
- Specify liquidity event conversion procedures
- Include dissolution event distribution rights
- Set automatic vs. optional conversion triggers
- Define conversion into preferred stock terms
Include: Pro rata rights and investor protection mechanisms.
- Grant pro rata participation rights in future rounds
- Include most favored nation provisions
- Add information rights and reporting requirements
- Include transfer restrictions and assignment limitations
- Specify major investor thresholds and enhanced rights
Complete: All party identification and contact details.
- Enter complete company legal name and jurisdiction
- Include company address and contact information
- Add investor name and entity information
- Include investor address and contact details
- Specify authorized signatories for both parties
Finalize: Legal terms, governing law, and proper execution.
- Include governing law and jurisdiction clauses
- Add amendment and waiver procedures
- Include dispute resolution mechanisms
- Obtain proper signatures from authorized representatives
- Date the agreement and maintain copies for all parties
⚠️ Legal Compliance and Professional Review
SAFE agreements involve complex legal and tax implications that can significantly impact founders and investors. While SAFEs are designed to be simpler than other investment instruments, they still require careful legal review to ensure compliance with securities laws and proper protection of all parties' interests. Always consult with experienced startup attorneys and tax professionals familiar with SAFE structures before execution.
Valuation Caps and Conversion Calculations
Understanding Valuation Caps
- Cap Definition: Maximum pre-money or post-money valuation for SAFE conversion
- Investor Protection: Ensures investors receive minimum ownership percentage
- Conversion Trigger: SAFE converts at lower of cap or actual round valuation
- Market Standards: Seed stage caps typically range from $2M to $20M
- Cap Setting Strategy: Balance investor protection with founder dilution concerns
- Multiple SAFEs: Different SAFEs may have different caps
Conversion Price Calculations
- Pre-Money Formula: Investment Amount ÷ (Cap ÷ Fully Diluted Shares)
- Post-Money Formula: Investment Amount ÷ Cap × Total Post-Money Shares
- Discount Calculation: New Round Price × (1 - Discount Rate)
- Better of Two: Investor gets better conversion rate of cap or discount
- Fully Diluted Basis: Includes all outstanding shares and options
- Share Price Determination: Based on new round pricing or cap valuation
Example Conversion Scenarios
- Up Round Example: $1M investment, $5M cap, company raises at $10M valuation
- Cap Protection: SAFE converts at $5M cap, not $10M round valuation
- Down Round Example: Same SAFE when company raises at $3M valuation
- Actual Valuation: SAFE converts at $3M actual valuation, not $5M cap
- Discount Example: 20% discount on $2.00 share price = $1.60 conversion price
- Best Terms: Investor receives better of cap conversion or discount price
Dilution Impact Analysis
- Founder Dilution: Percentage of company given up for SAFE investment
- Multiple SAFEs: Cumulative dilution from all outstanding SAFEs
- Option Pool: Additional dilution from employee stock option pool
- Future Rounds: How SAFEs affect pricing and dilution in subsequent rounds
- Cap Table Modeling: Projecting ownership after various conversion scenarios
- Liquidation Analysis: Return calculations for different exit valuations
Advanced Conversion Mechanics
- Shadow Series: SAFEs converting into separate series of preferred stock
- Participation Rights: Liquidation preferences and participation in distributions
- Anti-Dilution Protection: Weighted average adjustments for down rounds
- Pro Rata Calculations: Ongoing participation rights in future rounds
- Automatic Conversion: Mandatory conversion triggers and thresholds
- Cash vs. Stock: Form of consideration in different conversion events
Market Terms and Benchmarks
- Seed Stage Caps: $2M to $8M common for early seed rounds
- Pre-Seed Caps: $1M to $4M for very early stage companies
- Discount Rates: 15% to 25% standard range for early investors
- Investment Amounts: $25K to $2M typical range for individual SAFEs
- Geographic Variations: Silicon Valley vs. other markets may have different standards
- Industry Factors: SaaS vs. hardware vs. biotech may have different norms
💡 Valuation Cap Best Practices
- Set caps based on reasonable future round valuation expectations
- Consider total SAFE amount and cumulative dilution impact
- Model various conversion scenarios and exit outcomes
- Align caps with company milestones and value creation
- Communicate cap rationale clearly to all stakeholders
- Consider using post-money SAFEs for greater predictability
Legal Considerations and Best Practices
Securities Law Compliance
- Securities Registration: SAFEs are securities requiring exemption from registration
- Private Placement: Typically rely on Regulation D exemptions
- Accredited Investors: Most SAFE offerings limited to accredited investors
- Blue Sky Laws: State securities law compliance requirements
- Investment Limits: Maximum amounts that can be raised under exemptions
- Disclosure Requirements: Information that must be provided to investors
Tax Implications and Considerations
- Tax Deferral: SAFEs generally don't create immediate tax consequences
- Conversion Events: Tax implications upon conversion to equity
- 409A Valuations: Impact on employee stock option pricing
- Investor Treatment: Tax consequences for SAFE holders
- International Considerations: Tax treatment in different jurisdictions
- Professional Guidance: Need for tax counsel on complex situations
Corporate Governance and Board Rights
- No Voting Rights: SAFE holders typically don't receive voting rights until conversion
- Information Rights: Access to financial statements and company updates
- Board Observation: Rights for major investors to observe board meetings
- Protective Provisions: Veto rights over certain corporate actions
- Consent Rights: Approval requirements for significant decisions
- Director Designation: Right to appoint board members in some cases
Founder and Employee Considerations
- Dilution Planning: Understanding impact on founder ownership percentages
- Option Pool Creation: Timing of employee equity pool establishment
- Vesting Acceleration: Change of control provisions for founder equity
- Employment Terms: Integration with founder employment agreements
- IP Assignment: Intellectual property ownership and assignment requirements
- Non-Compete Provisions: Restrictions on competitive activities
International and Cross-Border Issues
- Foreign Investment: Compliance with foreign investment regulations
- Tax Treaties: International tax implications and withholding
- Currency Considerations: Exchange rate risks and denomination
- Legal Systems: Governing law in international transactions
- Dispute Resolution: Jurisdiction and arbitration clauses
- Regulatory Approval: Required approvals in different countries
Due Diligence and Documentation
- Corporate Records: Articles, bylaws, and board resolutions
- Cap Table Analysis: Current ownership and outstanding securities
- Financial Statements: Historical and projected financial information
- Legal Compliance: Verification of corporate good standing
- IP Documentation: Patents, trademarks, and proprietary technology
- Material Contracts: Key customer, supplier, and partnership agreements
⚠️ Legal Risk Management
- Ensure compliance with federal and state securities laws
- Obtain proper legal opinions on tax treatment and implications
- Maintain detailed records of all investor communications
- Consider impact on future fundraising and investor relations
- Review integration with existing corporate documents
- Professional legal review essential for all SAFE transactions
SAFE vs. Other Investment Instruments
| Feature | SAFE | Convertible Note | Priced Equity | KISS |
|---|---|---|---|---|
| Debt or Equity | Neither (Convertible Security) | Debt Instrument | Equity Ownership | Security (Debt-like) |
| Interest Rate | No Interest | Accrues Interest | No Interest | Usually No Interest |
| Maturity Date | No Maturity | Fixed Maturity | No Maturity | Usually No Maturity |
| Valuation Required | Deferred to Future | Deferred to Future | Immediate Valuation | Deferred to Future |
| Voting Rights | None Until Conversion | None Until Conversion | Immediate Rights | Limited Rights |
SAFE Advantages
- Simplicity: Shorter, more straightforward documentation than convertible notes
- No Interest: No debt service or interest accrual requirements
- No Maturity: No forced conversion or repayment date
- Founder Friendly: Designed to be more favorable to startups
- Quick Execution: Faster to negotiate and close than priced rounds
- Deferred Valuation: Avoids early valuation discussions and disputes
SAFE Disadvantages
- Uncertain Conversion: May never convert if no future funding
- No Immediate Equity: Investors don't receive shares until conversion
- Limited Rights: Fewer investor protections than preferred stock
- Dilution Uncertainty: Final ownership percentage unknown
- Tax Complexity: Unclear tax treatment in some situations
- Liquidation Risk: May receive nothing in early exit scenarios
Convertible Note Comparison
- Debt Structure: Convertible notes are debt instruments with repayment obligations
- Interest Accrual: Notes accrue interest that adds to conversion amount
- Maturity Pressure: Fixed maturity creates pressure for conversion or repayment
- Creditor Rights: Note holders have creditor rights in bankruptcy
- Tax Treatment: Clearer tax treatment as debt instrument
- Complexity: More complex terms and documentation requirements
Priced Equity Round Comparison
- Immediate Ownership: Investors receive shares immediately upon investment
- Voting Rights: Full voting and control rights from day one
- Board Representation: Potential board seats and governance rights
- Liquidation Preferences: Detailed liquidation and distribution rights
- Valuation Requirement: Must establish company valuation for pricing
- Documentation Complexity: Extensive legal documentation and negotiation
When to Use Each Instrument
- SAFE: Early-stage funding, quick capital needs, uncertain valuation
- Convertible Note: Bridge financing, specific maturity needs, debt comfort
- Priced Equity: Established valuation, significant funding, investor control needs
- Revenue-Based Financing: Recurring revenue businesses, debt alternative
- Grants and Awards: Non-dilutive funding for specific purposes
- Crowdfunding: Community-based funding for consumer products
💡 Choosing the Right Instrument
- Consider company stage, funding needs, and valuation certainty
- Evaluate investor preferences and market standards
- Assess complexity tolerance and legal costs
- Consider impact on future fundraising rounds
- Review tax implications for company and investors
- Consult experienced legal counsel for guidance
Frequently Asked Questions About SAFE Agreements
If your startup never raises a qualifying financing round, the SAFE may remain outstanding indefinitely without converting to equity. SAFE holders would have rights in liquidation events (like company sale) or dissolution, but wouldn't receive equity ownership. This is why it's important to understand conversion triggers and plan for various scenarios.
Yes, companies often issue multiple SAFEs with different valuation caps, discount rates, or other terms. However, most favored nation (MFN) clauses may automatically adjust earlier SAFEs to receive better terms offered in later SAFEs. It's important to track all outstanding SAFEs and their terms to understand cumulative dilution effects.
SAFEs can impact 409A valuations used for employee stock option pricing. The valuation firm will consider outstanding SAFEs and their terms when determining fair market value. Lower 409A valuations may result from SAFE overhang, but this can benefit employee option pricing. Coordinate with your 409A valuation provider about SAFE terms and timing.
Pre-money SAFEs convert based on the company's valuation before new money is added, while post-money SAFEs use the valuation after new investment. Post-money SAFEs provide more certainty for founders about final ownership percentages, while pre-money SAFEs can result in more dilution depending on the size of the new round.
SAFE investments are generally not tax-deductible for investors as they're equity investments, not charitable contributions or business expenses. Investors typically don't recognize gains or losses until conversion or liquidation events. Tax treatment can be complex and varies by jurisdiction, so investors should consult tax professionals for specific guidance.
Yes, international investors can participate in SAFE rounds, but additional considerations apply including foreign investment regulations, tax treaties, currency issues, and compliance with both US and foreign securities laws. Some countries have restrictions on foreign investments that may affect SAFE participation. Legal review is essential for international investors.
In acquisition scenarios, SAFEs typically convert to cash or acquirer stock based on the liquidation provisions in the SAFE agreement. The conversion amount depends on whether the acquisition price triggers the valuation cap or if SAFE holders receive their pro rata share of proceeds. The specific terms determine whether investors receive the cap amount or a percentage of the acquisition proceeds.
Implementation and Best Practices
SAFE Round Planning and Strategy
- Funding Goals: Determine total amount needed and use of proceeds
- Investor Targeting: Identify appropriate angel investors and early-stage funds
- Term Setting: Establish reasonable valuation caps and discount rates
- Timeline Planning: Set realistic timeline for SAFE round completion
- Legal Preparation: Engage experienced startup counsel early
- Documentation: Prepare investor materials and due diligence package
Cap Table Management
- SAFE Tracking: Maintain detailed records of all outstanding SAFEs
- Conversion Modeling: Model various scenarios for SAFE conversion
- Dilution Analysis: Understand cumulative dilution impact on founders
- Option Pool Planning: Consider timing of employee equity pool creation
- Future Round Impact: Assess how SAFEs affect next financing round
- Software Tools: Use cap table management software for accuracy
Investor Relations and Communication
- Regular Updates: Provide monthly or quarterly investor updates
- Financial Reporting: Share financial statements and key metrics
- Milestone Communication: Report progress on key business milestones
- Challenge Transparency: Communicate challenges and how you're addressing them
- Future Planning: Discuss plans for next funding round and growth
- Investor Portal: Consider using investor relations software
Compliance and Record Keeping
- Securities Compliance: Ensure proper filing of Form D and state notices
- Accredited Verification: Maintain records of investor accreditation
- Board Resolutions: Document board approval for SAFE issuances
- Corporate Records: Keep copies of all signed SAFE agreements
- Amendment Tracking: Document any modifications to SAFE terms
- Audit Preparation: Maintain records for financial audits
Preparing for Conversion Events
- Future Round Planning: Understand how SAFEs will convert in next round
- Valuation Strategy: Consider SAFE caps when setting round valuations
- Investor Coordination: Communicate with SAFE holders about conversion
- Legal Documentation: Prepare conversion documents in advance
- Tax Planning: Consider tax implications of conversion events
- Cap Table Updates: Plan for post-conversion cap table management
Common Mistakes to Avoid
- Excessive SAFEs: Raising too much on SAFEs creating overhang
- Unrealistic Caps: Setting valuation caps too high or too low
- Poor Documentation: Inadequate record keeping and tracking
- Compliance Failures: Missing securities law filing requirements
- Communication Gaps: Lack of regular investor updates
- Conversion Surprises: Unexpected dilution from SAFE conversions
✅ SAFE Success Factors
- Clear understanding of SAFE terms and conversion mechanics
- Appropriate valuation caps based on realistic projections
- Professional legal review and securities law compliance
- Detailed cap table modeling and dilution analysis
- Regular investor communication and relationship building
- Strategic planning for future financing rounds
Download Your SAFE Agreement Template and Next Steps
Our comprehensive SAFE agreement template has been designed by legal and startup experts to provide effective documentation for various early-stage investment scenarios. The template includes customizable provisions for pre-money and post-money structures, valuation caps, discount rates, conversion mechanics, and investor protections, making it suitable for seed rounds, angel investments, and early-stage fundraising.
✅ What's Included in Your Download
- Complete SAFE Agreement Template: Professional document covering all essential terms
- Multiple SAFE Types: Pre-money, post-money, cap, discount, and combination versions
- Conversion Mechanics: Detailed provisions for equity conversion events
- Investor Protections: Pro rata rights, MFN clauses, and information rights
- Legal Provisions: Comprehensive terms and conditions with risk allocation
- Implementation Guide: Step-by-step instructions for customization and execution
Implementation Steps After Download
- Legal Review: Have experienced startup attorneys review and customize the template
- Investment Strategy: Develop comprehensive fundraising strategy and investor targeting
- Term Setting: Establish appropriate valuation caps, discount rates, and other terms
- Due Diligence: Prepare company information and investor materials
- Securities Compliance: Ensure compliance with federal and state securities laws
- Execution and Management: Implement proper signing procedures and ongoing administration
When Professional Legal Assistance is Essential
- All SAFE transactions require experienced startup legal counsel
- Securities law compliance and regulatory filings
- Complex conversion mechanics or multiple SAFE rounds
- International investors or cross-border considerations
- Integration with existing corporate structure and agreements
- Tax planning and optimization strategies
Ongoing SAFE Management
- Cap Table Maintenance: Accurate tracking of all outstanding SAFEs and conversions
- Investor Relations: Regular communication and reporting to SAFE holders
- Compliance Monitoring: Ongoing securities law and regulatory compliance
- Conversion Planning: Preparation for future financing rounds and conversion events
- Documentation Updates: Proper record keeping and document management
- Strategic Planning: Integration with overall fundraising and growth strategy
⚠️ Legal and Investment Considerations
SAFE agreements involve complex legal, securities law, and tax implications that can significantly impact founders, employees, and investors. While SAFEs are designed to be simpler than other investment instruments, they still require comprehensive legal review and securities law compliance. The conversion mechanics, dilution effects, and investor rights can have major long-term consequences for all parties. Always work with experienced startup attorneys and tax professionals familiar with SAFE structures and startup financing.
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Startup Resources and Guides
- Startup Fundraising Best Practices
- Cap Table Management Guide
- Investor Relations Best Practices
- Securities Law Compliance for Startups
⚠️ Legal Disclaimer
This template and information are provided for educational purposes only and do not constitute legal advice. SAFE agreements and startup fundraising involve complex legal, securities law, and tax considerations that vary by jurisdiction and specific circumstances. Securities laws, investor protection regulations, and tax implications differ significantly across states and countries. Always consult with qualified attorneys specializing in startup and securities law before executing SAFE agreements or conducting any fundraising activities.