SAFE Agreements Explained
The Simple Agreement for Future Equity or “SAFE” agreement has become a popular means of investing in early stage ventures. The SAFE was created in part by the team at Y Combinator in an effort to address the problems posed by attempting to assign a valuation to early stage ventures – lack of data, operating history, revenues, etc. The theory behind the SAFE goes, in part, that a future “priced” funding round will accurately set a startup’s valuation and the discount typically applied to the investment made through SAFE will, in turn, accurately reflect the true valuation at which the SAFE investment was made.