SAFEs (Simple Agreements for Future Equity)

Definition

A legal instrument creating a right for investors to purchase equity in a future priced round at favorable terms. Y Combinator's attempt to make early-stage investing 'simple' (it's not).

Example Usage

We did our seed round with SAFEs instead of convertible notes because apparently it's simpler, even though everyone misunderstands the terms.

Origin

Created by Y Combinator and Fenwick & West in 2013 as a simpler alternative to convertible notes.

Fun Fact

SAFEs are supposedly 'simple' but generate more confusion and misunderstanding than the complex instruments they were meant to replace.

Source: Contemporary early-stage venture capital terminology

Related Terms

Advanced

full ratchet

The most aggressive anti-dilution protection where early investors' conversion price adjusts to match a down round price, regardless of how small the down round is. Financial punishment for daring to need more money.

🚀 Startup / VC

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party to the exit

A shareholder who has contractual rights to approve or block an acquisition or IPO, giving them veto power over exit decisions regardless of ownership percentage. Democracy in action, if democracy meant a small group could overrule the majority.

🚀 Startup / VC

Intermediate

pivot or die

The startup mantra that romanticizes abandoning your original business plan when it becomes clear nobody wants what you're building. It's plan B through Z, pitched as strategic thinking rather than desperate flailing.

🚀 Startup / VC

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tiger global-ing

Making investment decisions at lightning speed with minimal diligence, named after Tiger Global's spray-and-pray approach during the 2020-2021 bubble. High velocity, low conviction, maximum FOMO.

🚀 Startup / VC

Intermediate

SAFE

Simple Agreement for Future Equity—a Y Combinator innovation that lets startups take money now and figure out the valuation later. 'Simple' is debatable; some lawyers call them 'complex convertible debt without the debt.'

🚀 Startup / VC

Advanced

recapitalization

Restructuring a company's capital stack—often a euphemism for 'things went poorly and we need to reset everyone's expectations and ownership.' Can range from modest adjustments to burning everything down and starting over.

🚀 Startup / VC

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