SAFE stands for Simple Agreement for Future Equity.
It is a legal financing instrument designed to expand capital raising alternatives for early-stage startups.
how does it work?
SAFE allows an investor to invest a certain amount of money in exchange for the option to acquire future shares that may eventually arise from a future formal capitalization, as stipulated in the contract.
Key aspects
The settlement of the valuation ceiling (CAP) upon which the investor would convert the amount of money given into future shares when the company is capitalized.
It considers a discount on the price of future shares in case the expected capitalization is not as positive as expected, which allows investors to obtain a more shares than initially contemplated.
“Pro Rata” rights: they give preference to the investor to invest additional funds in the future investment round over other investors.
For investors:
Simple and low-cost investment alternative.
For entrepreneurs:
safe vs. convertible notes
It’s important to distinguish that, unlike Convertible Notes, SAFEs are not a debt mechanism, do not generate interest rates, and do not have an expiration date.
Our Expert
Andrés Alonso
Corporate Law
Coordinator
