The SAFE (Simple Agreement for Future Equity) was created by Y Combinator in 2013 as a simpler alternative to the convertible note. Like a convertible note, it converts into equity at a future priced round at a discount or cap. Unlike a convertible note, it is not a debt instrument: it carries no interest, has no maturity date, and creates no obligation for the company to repay it in cash. This makes it significantly cleaner for both founders and early investors.
The SAFE has two core terms: the valuation cap (the maximum price at which the SAFE will convert into equity, protecting the early investor in upside scenarios) and the discount rate (a percentage discount to the next round price, rewarding early risk). A post-money SAFE also specifies the ownership percentage the investor will receive on a fully diluted basis, which gives both parties more clarity at signing.
SAFEs have become the default instrument for pre-seed and seed rounds globally, with YC's 2018 "post-money SAFE" template being the most widely adopted form. Their simplicity reduces legal costs, speeds up closes, and avoids the maturity-date pressure of convertible notes. The main trade-off is that founders on a SAFE-heavy cap table must be careful about dilution — a stack of SAFEs can convert into more equity than expected if the company's valuation doesn't meet the cap levels.