If you're going through a US accelerator or raising from early-stage US investors, you'll almost certainly encounter a SAFE before you encounter a priced equity round. Most founders sign their first one without fully understanding what they've agreed to. That's worth fixing before you put your signature on one.
You just raised money for your startup. Congratulations! 🎉
Then your investor sends you a SAFE and says, “Please sign this.”
It looks simple. And compared to a full investment agreement, it usually is. But before you sign, it is worth understanding what you are actually agreeing to and what happens after the money hits your company bank account.
SAFE stands for Simple Agreement for Future Equity.
In simple terms, an investor gives your company money now. In return, they get the right to receive shares in your company in the future.
For example, an investor gives your startup $100,000 through a SAFE. They do not usually receive shares immediately. When you later raise a priced funding round, the SAFE can convert into shares based on the terms you agreed to.
Think of it as:
Money now → equity later.
A SAFE is commonly used by early-stage startups because it can make fundraising simpler when it is still difficult to put a value on the company.
Imagine you are an early-stage startup with a small team, an early product, and maybe a few customers. You want to raise $200,000, but you and your investors do not want to spend weeks negotiating the exact value of the company.
A SAFE can make this process easier. You agree on certain terms with the investor, they invest, and the details of the company's valuation can be worked out later when you raise a larger round.
For founders, this can mean a faster and simpler fundraising process.
But there is one important thing to remember:
A SAFE is simple to sign, but it can still have a big impact on your company.
There are a few terms you should understand.
A valuation cap is one of the most important parts of a SAFE.
For example, imagine you sign a SAFE with a $5 million valuation cap. Later, your startup raises a funding round at a $10 million valuation.
The SAFE may allow the investor to convert their investment using the lower $5 million valuation.
This gives the early investor a better price because they took the risk of investing earlier.
For you as a founder, this means you should understand how the valuation cap could affect your ownership later.
Some SAFEs also include a discount.
For example, your next investors pay $1 per share, but your SAFE gives the investor a 20% discount. They could receive shares at $0.80 per share.
Some SAFEs have a valuation cap, some have a discount, and some have both.
This is something every founder should understand.
When your SAFE converts into shares, the investor becomes a shareholder. That means your percentage of the company can decrease.
For example, you might own 100% of your company today. After raising money through SAFEs and then completing a priced funding round, you may own a smaller percentage.
This is called dilution.
The important question is not only:
“How much money am I raising?”
It is also:
“How much of my company could I give up?”
Signing the SAFE is not the end. You should keep track of the investment and make sure your company records are updated. Your cap table should reflect the SAFE, and you should keep the signed documents somewhere safe.
You should also tell your accountant about the investment. This becomes especially important if you raise money from several investors and each SAFE has different terms.
A few SAFEs may be easy to manage. Several SAFEs with different valuation caps, discounts, or other terms can become much harder to track.
This is where founders often forget about the SAFE after the fundraising is done. The money came into the bank account, so it is important to record it correctly in your company's books and keep the documents organized.
Your SAFE should not simply disappear into your accounting records as “money received.” Your accountant should know about the investment and have the relevant documents.
Depending on your situation, there may also be tax, accounting, securities, or other compliance requirements to consider.
Absolutely. If you are a foreign founder who created a US company to raise money from US investors, there are several things to keep track of beyond the SAFE itself.
Your company structure, cap table, bookkeeping, tax filings, and company documents all need to stay organized. This is especially important if you are just starting to raise money and are not familiar with US tax and compliance requirements.
Getting the company set up correctly before fundraising can save you a lot of headaches later.
Before signing a SAFE, make sure you understand:
A SAFE is designed to make early-stage fundraising easier.
But don't let the word “Simple” make you think there is nothing to think about.
Before you sign, understand the terms, think about how they could affect your ownership, keep your documents organized, and make sure your accounting and tax records are ready for the next step.
Raising money is exciting. Just make sure the paperwork doesn't become a problem later.
See the documents checklist for raising on a SAFE → taxhero.vc/blogs/documents-needed-to-raise-on-a-safe
Back to the full US incorporation guide for accelerator founders → taxhero.vc/blogs/us-company-incorporation-guide-accelerator-founders
If you are a startup founder and want to know what tax and compliance deadlines apply to your company, get your free startup tax calendar.
Get your free tax calendar → taxhero.vc/checkin
This article is for informational purposes only and isn't legal or tax advice. Consult a licensed professional for your specific situation.
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