“SAFE” (or “Simple Agreement for Future Equity”) is a unique form of Convertible Security that is neither a Debt Security nor an Equity Security.
Rather, a SAFE is an agreement between the company and its Investors that, for a particular amount of investment now, the Investors will receive certain Equity Securities at a later point in time.
While SAFEs and Convertible Promissory Notes share many similar characteristics, a SAFE differs from a Convertible Promissory Note, among others, in the following ways:
- As its name implies, a SAFE typically involves simpler and shorter investment documentation (i.e., five pages compared to the 30+ pages required for a Convertible Debt Financing);
- A SAFE does not carry an Interest Rate or have a Maturity Date; and
- Convertible Promissory Notes typically require a threshold amount of Equity Financing in order to trigger their conversion, meaning that the company must raise a minimum level of equity investment before the Convertible Promissory Notes convert into that next round of Equity Securities. A SAFE typically does not have a minimum threshold requirement.