(Contributed by Gordon Daugherty, Capital Factory President)
Initially made available by Y Combinator (YC) in 2013 and subsequently updated in late 2018, the SAFE investment instrument was intended to improve on the highly popular convertible note used by startups during the seed stage or as a short-term bridge between equity funding rounds. SAFE stands for “simple agreement for future equity” and it is still most popular in California. However, over the years since it’s release it is being used more in other parts of the country.
The purpose of this article is to review the elements that make up a SAFE investment, compare them to a convertible note and generally help both entrepreneurs and investors decide which is more appropriate for their situation.