A SAFE transaction is an exchange of cash (from the investor) for an agreement that may result in ownership interest in the future.  While not a debt instrument, the SAFE agreement like a convertible note provides the ability to obtain cash now for the potential to have an ownership interest in the future. Key things to know about SAFE:

  • not debt,
  • conversion triggered by an event,
  • no interest accrual,
  • demonstrates investor intent,
  • flexible,
  • single-document agreement without limited terms to negotiate,
  • minimizes legal and other fees (saves time and money), and
  • can have an investment cap.

There are several forms of SAFE Agreements:

  • Valuation Cap, no Discount
  • Discount, no Valuation Cap
  • Valuation Cap and Discount
  • MFN, no Valuation Cap , no Discount.

MFN provides the right to renegotiate the terms of the SAFE if a subsequent round of convertible securities is issued. If the new round has more favorable terms, then the investor has the right to amend his/her agreement to the more favorable terms.

Valuation Caps place a limit on the valuation that is used in a conversion calculation.

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