Raising capital as a startup founder can feel like navigating a legal minefield. Between equity dilution, investor protections, and uncertain valuations, the pressure to make smart, founder-friendly decisions is real. That’s where SAFEs (Simple Agreements for Future Equity) come in.

At Zecca Ross Law, we help early-stage companies raise capital confidently and cleanly—with legal insight to ensure you don’t give away more than you should. Below, we break down the advantages, risks, and structure of SAFEs to help you determine whether this flexible funding tool is right for your startup.

What Is a SAFE?

A SAFE is a contractual agreement between your startup and an investor that allows the investor to buy equity in your company—later. Originally developed by Y Combinator in 2013, the SAFE has become one of the most widely used funding instruments for seed-stage deals.

The core idea:
You get the money now. The investor gets equity only when you raise your next priced funding round (like a Series A), or in the event of a sale or IPO.

Unlike traditional equity financing:

  • No valuation negotiation is required upfront
  • No debt is created (no maturity date, no interest)
  • No immediate share issuance occurs

How Does a SAFE Work?

When you sign a SAFE, you're promising future shares—usually at a discount rate or a valuation cap—in return for an investment today.

Key triggers for conversion into equity include:

  • Your next priced equity round
  • A change-of-control event (e.g., acquisition or IPO)
  • A liquidation event

Until the SAFE converts, the investor has no ownership, no voting rights, and no claim on company profits.

Pre-Money vs. Post-Money SAFEs

The biggest decision you’ll face when issuing SAFEs is whether to structure them as pre-money or post-money. Each method affects dilution and investor expectations differently.

Pre-Money SAFE

  • More common in older YC templates
  • Investor’s equity is calculated before new money is added
  • Offers founders more flexibility, but less clarity to investors

Post-Money SAFE

  • Investor's ownership % is locked in regardless of other SAFEs issued later
  • Easier for investors to model equity outcomes
  • Can lead to more significant founder dilution down the line

SAFE vs. Convertible Note: What's the Difference?

1. Debt vs. Non-Debt

  • Convertible Notes are loans. They include interest and must be repaid if they don’t convert.
  • SAFEs are not debt—they don’t accrue interest, and there’s no maturity date.

2. Conversion Mechanics

  • Convertible Notes typically convert only if the next round raises a minimum threshold (e.g., $1M).
  • SAFEs convert as soon as a priced equity round occurs—no minimum raise required.

When Do Startups Prefer SAFEs?

  • They want to raise quickly without negotiating valuation
  • They don’t want to take on debt
  • They’re raising from angels or accelerators
  • They’re preparing for a larger priced round later

Can Any Company Issue a SAFE?

Generally, SAFEs are best suited for C-Corporations. Most institutional investors prefer to fund Delaware C-Corps due to predictability in corporate governance and tax treatment.

LLCs can technically issue SAFEs, but doing so often creates complications in how equity is tracked, reported, and taxed. We advise converting to a C-Corp before issuing SAFEs to avoid headaches later.

SAFE Agreement Template

Zecca Ross Law offers customizable, attorney-reviewed SAFE templates tailored to:

  • Pre- or post-money structures
  • Discount rates and valuation caps
  • Most Favored Nation (MFN) clauses
  • Optional side letters and pro-rata rights

Key SAFE Terms to Understand

  • Valuation Cap: The maximum valuation at which your SAFE converts. The lower the cap, the more equity the investor receives.
  • Discount Rate: Offers the investor a percentage discount off the next round’s price-per-share.
  • MFN Clause: If you later offer a better SAFE to another investor, this clause allows earlier investors to adopt the same terms.
  • Qualifying Round: The next round of equity financing where the SAFE will convert.
  • Exit Event: A sale or IPO before conversion triggers a return to the investor—usually cash or stock, depending on terms.

4 Questions to Ask Before Issuing SAFEs

  1. How much equity are you willing to part with?
    SAFEs delay dilution—but it’s real and cumulative. Model conversion outcomes carefully.
  2. How much will you raise in your next priced round?
    Raising too much now can over-dilute your future investors (and yourself).
  3. What milestones will this capital help you reach?
    Tie your fundraising to product, user, or revenue goals that increase your valuation next round.
  4. How are you tracking your SAFEs?
    Keep a centralized log of each SAFE's terms—valuation cap, discount, and investor info—to avoid surprises later.

Ready to Issue a SAFE?

Zecca Ross Law makes it easy to raise with SAFEs. Our services include:

  • Legal counsel on structure and strategy
  • Custom SAFE agreement drafting
  • Investor side letter reviews
  • Cap table impact modeling
  • Ongoing support through your next priced round

Book a call with our legal law team today, and let’s simplify your fundraising journey—together.