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A Safe Investment

What is SAFE?

It is an acronym for “Simple Agreement for Future Equity” – a type of investment contract. In Ireland, start-ups seeking early-stage funding from investors typically document that debt with a convertible loan note instrument (CLN). However, on the West Coast of the US, things have moved on to a more founder-friendly fundraising alternative. The SAFE has continued to grow in popularity there since its inception back in 2013 and it is now considered the standard investment agreement. Why? We summarise what you need to know about SAFE and consider its use in an Irish context.

Key features of SAFE

SAFE is, in its purpose and design, a simple agreement to document an investment in a company. With SAFE notes, the investor receives a contractual right to future equity (shares) on the occurrence of certain events, including further financing rounds or the sale of the company.

The main purpose of SAFE is to standardise the process of investing in an early-stage company. This minimises legal costs and time spent negotiating and documenting the terms of an investment, which can often be more complex with a CLN. The simple and standardised paperwork makes it one of the quickest ways for a start-up to raise capital.

SAFE notes are not debt and therefore unlike CLNs, there is no due date / maturity date or interest accruing on the principal amount invested. They are purely convertible equity. This provides a lot of comfort to founders who are usually at a pre-revenue stage when they are trying to raise seed capital. However, without a maturity date or the occurrence of a financing round or sale or other agreed trigger event, the SAFE may never have to convert. It will remain outstanding until it is repaid or converted during a liquidity event. This is a key difference between SAFE notes and CLNs.

The terms of a SAFE are typically straightforward. Unlike CLNs, investors will typically have no rights to monitor their investment, with a board seat or otherwise, the management of the company, in terms of certain matters which would require investor consent or have access to the company’s financial information.

Important terms for a SAFE agreement

Some key terms that may be negotiated when entering into a SAFE agreement include:

  • The discount rate for future financing rounds
  • The valuation caps, and
  • Whether a most-favoured nations clause (MFN) should apply

These are many ways to reward an investor for investing at an early stage.

Investors will be looking to negotiate high discount rates on the price per share and/or low valuation caps for future equity conversion events. A valuation cap is a pre-negotiated amount that serves to cap the conversion price that the investor will pay once shares are issued. It is optional; a SAFE can be uncapped, just like a CLN. If you do go with a valuation cap, you can either have a pre-money cap, which is arguably more founder friendly, or a post-money cap, which is more investor friendly. To properly assess a potential investment, you must know which cap is being proposed.

If the company agrees to an MFN, it will give the investor the ability to piggy-back on any more favourable terms that a future investor negotiates with the company on the next financing round.


SAFE was designed for early-stage US corporations seeking seed capital in exchange for issuing stock. Therefore, as an Irish company or investor, caution should be applied if you are being asked to use the standard Y Combinator documents for an investment. Do your diligence and ensure what you have been presented with is “off the shelf”. At a minimum, we recommend that SAFE notes for Irish companies are tailored specifically for Irish law.

Whether or not SAFE notes are right for your company, or for your investment, will depend on the circumstances in each case. However, SAFE notes will not usually be appropriate for larger funding rounds or investment amounts; more mature companies; or be attractive to seasoned VC’s who will not be comfortable to forgo the power and flexibility that a CLN offers to them.

For more information, please contact a member of our Corporate or Life Sciences teams.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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