A SAFE note (Simple Agreement for Future Equity) is a seed-stage investment instrument that converts to equity in a future priced round. Created by Y Combinator, it is widely used in India's early-stage ecosystem. Unlike a convertible note, a SAFE has no maturity date and pays no interest — it is purely a right to receive equity.
Key terms
- Valuation cap: the maximum valuation at which the SAFE converts — protects the early investor if the company grows a lot before Series A
- Discount rate: a percentage discount to the Series A price at which the SAFE converts (e.g. 20% discount)
- MFN (Most Favoured Nation): if a later SAFE has better terms, the earlier SAFE can opt into them
Why it matters for unlisted shares
SAFE holders are not yet shareholders — they hold a right to future equity. If a company has outstanding SAFEs that haven't converted, the eventual conversion will dilute all existing shareholders. The cap table should disclose outstanding SAFEs and their terms.
Example: An angel invested ₹50 lakh via SAFE at a ₹10 crore cap. At Series A priced at ₹80 crore, the SAFE converted at ₹10 crore — giving the angel a much larger stake than later investors.