A Simple Agreement for Future Equity (SAFE) offer future equity rights without immediate valuation, making them popular for early-stage startup funding. These were introduced by Y-Combinator in 2013 and these convert into equity during funding rounds or acquisitions.
SAFEs are offered at a discount or with a valuation cap to incentivize early investment. SAFEs differ from traditional financing by not accruing interest or having a maturity date, simplifying the negotiation process. Benefits include flexibility, alignment of investor and startup success, and reduced founder dilution, though they pose risks if triggering events don’t occur.