(Contributed by Gordon Daugherty, Capital Factory Director)
Recently made available by Y Combinator, the SAFE investment instrument is intended to improve on the highly popular convertible note used by startups during the seed stage or as a short-term bridge between equity rounds. SAFE stands for “simple agreement for future equity”. The purpose of this blog post is to generally review the elements that make up a SAFE investment and compare them to a convertible note. For those not already highly familiar with convertible notes, see my blog post title “Convertible Note Basics” for a primer.
Before jumping into the review and comparison, I’ll say that I generally like SAFE and would not have a problem investing using it, either as an investor or recommending it to a startup I advise. I can’t yet say that I prefer it over a convertible note. Instead, I see both as viable investment instruments for seed stage investing, each with their own pros and cons. I’m not quite sure I like the name because all seed stage investing is highly risky but hopefully accredited investors already know that. Coming up with an acronym for SIMPLE might have been more appropriate but I’m at least happy to see another viable seed stage investment instrument in the market.