SAFE = Simple Agreement for Future Equity.
SAFE is a short contract where an investor provides cash today and gets equity later when the business does a priced round. It is not debt. No interest. No maturity date. It converts into shares when LAP.red raises an equity round that meets the trigger.
Core parts
- Valuation cap: a ceiling that sets the max price the SAFE investor will pay.
- Discount: percentage off the next round price. Investor gets the better of cap or discount.
- Post-money vs pre-money: modern SAFEs are post-money. Ownership is easy to see now: Investor % ≈ investment ÷ post-money cap.
- Pro rata rights: optional right to buy more in later rounds to maintain ownership.
- MFN: optional clause that lets an investor adopt better terms you give to later SAFEs.
- Trigger events: priced equity round, sale of the company, or dissolution.
How it behaves vs a convertible note
- SAFE: not debt, no interest, no repayment schedule.
- Note: is debt, accrues interest, has a maturity date, may force a payback or convert.
Quick example
- LAP.red raises $200,000 on a post-money SAFE with a $6 million cap and 20-percent discount.
- Next round prices the company at a $10 million pre. The SAFE converts at the better price.
- With post-money math, the investor gets about $200,000 ÷ 6,000,000 = 3.33 percent of the company at conversion, before any pro rata top-ups.
Founder cautions
- Do not stack many SAFEs without a cap table model. Dilution can bite at Series A.
- Keep caps aligned across SAFEs or explain any differences.
- Write down pro rata, MFN, and side letters in plain terms.
- Track how option pool expansions will be handled at the priced round.
Bottom line:
A SAFE is a fast, standard way to raise early money that turns into equity at the first priced round, with economics set by the cap and discount.
