What is a SAFE Note?
The SAFE (Simple Agreement for Future Equity) is a popular financing instrument used globally for early-stage startup funding. Developed by the US accelerator Y Combinator, it is an agreement that grants an investor the right to purchase equity in a future funding round.
The fundamental appeal of the SAFE is its simplicity: It is not a debt instrument.
SAFE vs. Debt The SAFE replaced the traditional Convertible Note primarily because it eliminates the complexity of debt:
- No Maturity Date: Unlike a Convertible Note, the SAFE doesn't have a ticking clock that forces the company to repay the money if a funding round doesn't happen.
- No Interest: It does not accrue interest, simplifying accounting and Cap Table calculations.
The SAFE's terms—like the Valuation Cap (the maximum valuation at which the investor converts) and the Discount (the percentage off the next round's share price)—ensure that early investors are compensated for taking the highest risk.
The UK Context: The ASA While the SAFE is widely used globally, UK founders often use the Advanced Subscription Agreement (ASA) instead. The ASA is functionally very similar to the SAFE (equity pre-payment, not debt) but is specifically structured to ensure eligibility for SEIS and EIS tax relief, which are crucial for attracting UK angel investors. Founders should always consult legal counsel regarding the best instrument for their specific jurisdiction and investor base.
Key Takeaway: The SAFE is the purest, simplest way to raise money quickly before setting a formal valuation, minimizing legal overhead for both the founder and the investor.
