Simple Agreements for Future Equity: An Overview of How Safes Actually Work

55 questions on simple agreements for future equity, answered and cited by the UpLaw editorial team.

• Can a converting SAFE behave like a full-ratchet anti-dilution provision?
• Can I just download the Y Combinator SAFE and use it without a lawyer?
• Can you work through a full conversion with both a cap and a discount?
• Did the post-money redesign change the SAFE's tax posture?
• Does the standard SAFE work outside the United States?
• Do the anti-fraud rules apply to an exempt SAFE offering?
• How does a discount convert when the Series A has a stated per-share price?
• How does a SAFE differ from a convertible note?
• How does a SAFE interact with qualified small business stock under Section 1202?
• How does a valuation cap convert when the Series A prices above the cap?
• How does a valuation cap convert when the Series A prices below the cap?
• How does the choice between a SAFE, a note, and priced stock affect Section 409A option pricing?
• How do lawyers draft around the phantom liquidation preference?
• How is a SAFE taxed?
• How large can a phantom liquidation preference get?
• How much of a SAFE should you actually negotiate?
• How should outstanding SAFEs be shown on a cap table?
• Is a convertible note a security?
• Is a SAFE always the right instrument for a seed round?
• Is a SAFE a security under federal law?
• Is a SAFE debt or equity?
• Is the SAFE company-friendly or investor-friendly by design?
• Should founders grant pro-rata rights to seed investors?
• What alternatives to the Y Combinator SAFE exist?
• What filings does a SAFE round require?
• What happens if a SAFE round blows its securities exemption?
• What happens to a founder's stake when a Series A lands on top of a SAFE pileup?
• What happens to a SAFE if the company never raises a priced round?
• What happens when a SAFE has both a cap and a discount?
• What is a discount in a SAFE, and how does it compare to a cap?
• What is a most-favored-nation clause in a SAFE?
• What is a phantom liquidation preference?
• What is a priced round, and why does the SAFE definition depend on it?
• What is a SAFE pileup, and how does it eat a founder's ownership?
• What is a SAFE?
• What is a SAFE side letter, and what does it typically contain?
• What is a step-up discount?
• What is a valuation cap in a SAFE?
• What is the conversion trigger in a SAFE, and what should you watch in the drafting?
• What is the danger of accumulating side letters?
• What is the difference between a pre-money and a post-money SAFE?
• What is the difference between Rule 506(b) and Rule 506(c)?
• What is the founder's dominant risk in a SAFE round?
• What is the Section 4(a)(2) private-offering exemption, and why do issuers prefer Regulation D?
• What problem was the SAFE invented to solve?
• What risks does a SAFE investor actually carry?
• What should a founder do before signing a SAFE?
• What three factors make a SAFE pileup worse?
• Where is the crossover point when a SAFE has both a cap and a discount?
• Who created the SAFE, and when?
• Who qualifies as an accredited investor?
• Why did the 2018 shift to post-money SAFEs move risk onto founders?
• Why does the fully diluted denominator matter so much in a SAFE conversion?
• Why is discount conversion recursive when the round is expressed as a valuation?
• Why is “post-money” a misnomer in the SAFE context?