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SAFEs for Startup Financing: Benefits, Risks, Processes, and Avoiding Pitfalls

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Wednesday, August 30, 2023

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This CLE webinar will discuss the use of a simple agreement for future equity (SAFE) in early-stage financing for startup companies. The panel will discuss how SAFEs have fundamentally changed the speed and simplicity of early-stage fundraising. The panel will also discuss how the SAFE has evolved since its introduction by Y Combinator in 2013 and how despite its simplification, a SAFE may be neither "safe" nor "simple."


A SAFE is a contractual agreement between a startup and its investors. In exchange for the investor's investment, the SAFE provides the investor with the right to equity in the startup when the company raises a future round of funding, typically a preferred stock financing round. The SAFE sets out conditions and parameters for when and how the capital will convert into equity. Unlike a convertible note, a SAFE does not accrue interest or have a maturity date. While the SAFE may not be suitable for all financing situations, the terms are intended to be balanced by considering the interests of both the startup and investors.

Despite the simplification provided by SAFEs, over the past few years there has been an increase in additional terms creeping into the SAFE and being presented as part of the "standard" form--in many instances through a side letter. Some startups, desiring to move fast and accept what they believe to be industry-standard terms, do not realize that these additional terms sometimes give investors significant advantages or rights that the investor would not otherwise have with the standard SAFE form, which could impact a startup's ability to attract future capital from investors. Some examples of additional terms include board seats, pro rata rights, and information rights.

The pace of startup financing using a SAFE is expected to increase and evolve. Thus, it is important that both startups and investors understand how the SAFE actually works and the SAFE's impact on dilution. Much of the benefit that can be derived from using a SAFE can be quickly undone by either side's failure to understand or an attempt to get creative with additional terms.

Listen as our experienced panel discusses the good, the bad, and the ugly of SAFEs by providing the context ‎necessary to better understand its purpose and underlying terms.



  1. Things to know about SAFEs
    1. SAFEs are not stock
    2. All SAFEs are not created equal
    3. Components of a SAFE and traditional terms
    4. Understanding what triggers the conversion of a SAFE and what does not
    5. Alternatives to SAFEs and differences
    6. Evolution of the SAFE
  2. Advantages of SAFEs
    1. Quick and simple
    2. Stand-alone agreements
  3. Disadvantages of SAFEs
    1. Stand-alone agreements
    2. Multiple valuation caps and/or discounts
    3. Pro rata rights
    4. Ambiguity regarding proper tax and accounting treatment
  4. Common pitfalls
    1. Not using a consistent SAFE
    2. Negotiating additional terms; over-use of side letters
    3. Understanding and modeling the SAFEs impact on dilution


The panel will review these and other key issues:

  • When is it appropriate to use a SAFE?
  • What are the alternatives to SAFEs?
  • How does a SAFE differ from a convertible note?
  • When and how do SAFEs typically convert?


Dayans, Christopher
Christopher M. Dayans

Manatt Phelps & Phillips

Mr. Dayans is a partner in the venture capital and emerging companies practice. His practice includes representing...  |  Read More

McDerby, Richard
Richard G.J. McDerby

Manatt Phelps & Phillips

Mr. McDerby is a venture capital and emerging companies partner. His practice spans the full array of corporate and...  |  Read More

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