Angel 101: Terms & Tech
What’s a SAFE Note
🤓 A SAFE note is a financial instrument used in most early-stage startup investing. It allows investors to provide capital to a startup in exchange for a promise of future equity. Hence the term Simple Agreement for Future Equity. SAFEs have been the standard in early-stage startup investing for a decade. Angels and VCs all use SAFEs.
SAFEs set the terms for determining how much equity you’ll get down the road for the money you invested today. But technically you don’t own the equity at the time of investing through a SAFE. The SAFE converts to equity later - typically when the startup matures and raises additional capital on a “priced funding round”.
If you are wondering “why SAFEs vs just issuing equity,” you can dig into that on your own. The short answer is: It’s easier and cheaper.
The two SAFE terms you need to know
There are two key terms in a SAFE: the valuation cap and the discount rate.
If something shows up on Play Money with a different set of terms (a pre-money cap, and MFN term, or *gasp* an uncapped note), we’ll explain it in the deal memo.