Safe Financing Documents
The safe (simple agreement for future equity) is intended to
replace convertible notes in most cases, and we think it
addresses many of the problems with convertible notes
while preserving their flexibility. In addition to being simpler
and clearer, we intend the safe to remain fair to both investors
During its development the safe was positively reviewed by many
of the top startup investors.
We believe it's a positive evolution of the convertible note
and hope the startup community finds it an easier
way to accomplish the same goals.
Features of a safe:
In 2008, Y Combinator published a simplified set of
Series AA Preferred Stock financing documents
designed to streamline the early
stage equity financing process. More recently we've disseminated
through Clerky a series of
convertible promissory notes optimized for early-stage startup
fundraising. We hope the safe further simplifies this process.
- Unlike a convertible note, a safe is not a debt instrument. Debt
instruments have maturity dates, are typically subject to certain
regulations, create the threat of insolvency, and can include security
interests and sometimes subordination agreements, all of which can
have unintended negative consequences for startups.
- Because the money invested in a
startup via a safe is not a loan, it will not accrue interest. This
is particularly beneficial for startups, but also better embodies
the intention of investors, who never meant to be lenders in the first place.
- As a
flexible, one-document security without numerous terms to negotiate,
a safe should save startups and investors money in legal fees and
reduce the time spent negotiating the terms of the investment.
Startups and investors will usually only have to negotiate one item:
the valuation cap. Because a safe has no expiration or maturity
date, there should be no time or money spent dealing with extending
maturity dates, revising interest rates or the like.
- A safe still allows for
high resolution fundraising.
close with investors as soon as both parties are ready, instead of
trying to coordinate a single close with all investors simultaneously.
There are four versions of safe, corresponding to the four types
of convertible note:
While a safe may not be suitable for all situations, the terms are
intended to be fairly neutral. So while we would of course advise
both parties using a safe to have their lawyers look at them, we
believe a safe provides a starting point that we hope can be used
in many situations without too many modifications. Needless to say,
YC does not assume any responsibility for any consequence of using
a safe or any other document found on our website.