Insights

SAFE Financing – Easy Instructions for Use

Emerging Companies & Venture Capital

The SAFE (Simple Agreement for Future Equity) investment structure was a great innovation in financing structures by the Silicon Valley-based Y Combinator team. It has simplified and lowered the cost of first-stage financings for many startups. As a result, the SAFE has become the investment contract of choice for startup companies that have already attracted interest from investors. The reasons for the popularity of the SAFE and pros/cons compared to the second most popular form of investment contract – convertible promissory notes — are covered well elsewhere. For more on those topics, check here and here.

For the definitive, detailed guide on the use of the SAFE to raise money for your startup, review the Y Combinator SAFE document repository, which includes their comprehensive User Guide. But if you are thinking – “I don’t have time to read a 31-page document filled with legalese and algebra before I use a 7-page form. My investors are ready to wire funds, so I just need to know how to complete the form!” We get you! Our simple advice is:

  1. Go to the Y Combinator document repository and download either the “Valuation Cap” or the “Discount” variation, whichever one your investors expect (more on this topic below).
  2. Fill in your company’s name, state of incorporation and address where indicated (first and last page).
  3. Fill in the investor’s name and address where indicated (first and last page).
  4. Fill in the dollar amount and date of the investment in the first paragraph that starts with “THIS CERTIFIES THAT ….”
  5. Fill in the Valuation Cap or Discount Rate, depending on which of the two forms you downloaded, in the third, very short paragraph.
  6. Just before the signatures, in the second-to-last paragraph (Subsection (f)), fill in the “Governing Law Jurisdiction,” which is normally the same as your company’s state of incorporation.

At this point, you are done. DO NOT CHANGE ANY OTHER ASPECT OF THE FORM! Just collect signatures and ask your investor(s) to wire transfer their funds.

We promised to return to the topic of which form to download – the Valuation Cap SAFE or the Discount SAFE. Each has advantages and disadvantages, and we’ll discuss some of those in subsequent articles. In an effort to keep things simple for now, the answer is to use whichever form most of your investors want! Odds are that your investors have more experience than you do with different investment alternatives and they probably have preferences based on their past investments. Theoretically a startup can use more than one type of SAFE with different investors, but we strongly recommend that you pick one form and use that same form for everyone. Most of the time, all the investors in a single round of financing will expect to get the same economic terms. So, once you have a critical mass of interested investors, just work with them to pick the approach the majority is most comfortable with.

The hardest part, after rounding up your investors, is negotiating the Valuation Cap or Discount with your investors, but you don’t need our help with that. Obviously, the startup typically prefers the highest possible Valuation Cap, or the lowest possible Discount. Once you have a “handshake” agreement with your investors on that, use this handy guide to fill in the form and wait for the money to roll in!

While the SAFE structure has been a great innovation, there are still ways you can make costly mistakes. Future articles will address the most common types of mistakes to avoid.


Chris has spent most of his career as a strategic legal advisor to company founders, board members, executives, and investors, primarily for companies in the information technology and life sciences industries. His deep experience with companies in those industries helps him bring a practical business perspective to his legal work. Chris often serves as outside general counsel for these companies, and his practice includes a high volume of seed and venture capital financings, private placements, and mergers & acquisitions for his clients. You can email him at clynch@wyrick.com.

The purpose of this brief is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.