Glossary · Funding instruments · Updated
A SAFE (Simple Agreement for Future Equity) is a contract under which an investor pays money now in exchange for shares issued later, at the next priced round. Created by Y Combinator in 2013, it is neither debt nor equity: no interest, no maturity date, only a promise to convert.
The point of a SAFE is to skip the longest negotiation of an early raise: price. Rather than agreeing a valuation when the company has no revenue and no history, the question is deferred to the next round, when there will be objective evidence to settle it.
Two parameters decide what the investor ends up with. The valuation cap sets a ceiling on the valuation their money converts at, protecting them if the company takes off. The discount gives them a reduction on the price new investors pay, rewarding the earlier risk. When both exist, whichever is more favourable to the investor applies.
The SAFE is a US-law instrument. In France the BSA AIR is used instead, achieving the same goal within a framework compatible with the SAS company form. A European fund will sometimes accept a SAFE, but counsel will usually steer a French company to the BSA AIR.
Example: a SAFE converting at the next round
An angel invests €500K on a SAFE. Eighteen months later the startup raises a seed at an €8M valuation.
| Amount invested on the SAFE | €500,000 |
|---|---|
| Valuation cap | €5,000,000 |
| Discount | 20% |
| Next round valuation | €8,000,000 |
| Price via the discount | €8M × 80% = €6,400,000 |
| Price via the cap | €5,000,000 |
| Basis applied (more favourable) | €5,000,000, the cap |
| Ownership on conversion | €500K / €5M ≈ 10% |
With no cap, the investor would have converted at €6.4M and received roughly 7.8%. The cap is therefore worth more than two points of equity, paid for by founder dilution.
SAFE or BSA AIR: the comparison
Both instruments answer the same need: investing without setting a valuation. They sit under different legal systems, and for a French company the choice is more constrained than it looks.
| Criterion | SAFE | BSA AIR |
|---|---|---|
| Governing law | US, drafted for Delaware | French, designed for the SAS form |
| Legal nature | Agreement to subscribe for future shares | Warrants carrying a right to subscribe |
| Valuation floor | Not in the standard version | Present in most contracts |
| Valuation cap | Yes | Yes |
| Discount | Yes | Yes |
| Interest | None | None |
| Repayable | No, there is nothing to repay | No, converts at a longstop date |
| Documentation | Free public templates from Y Combinator | Drafted by counsel, case by case |
| Use in France | Rare, causes friction at conversion | The market standard at pre-seed |
For a French SAS, the BSA AIR is the appropriate instrument. A SAFE remains useful if you are raising from US investors used to the format, or if your parent company is already incorporated in the United States.
The common mistake
Stacking several SAFEs at different caps without ever modelling their combined conversion. Each looks reasonable alone; together they can represent 25–30% of the company on the day they all convert, which founders tend to discover at the worst possible moment.
Frequently asked questions
How does a SAFE differ from a convertible note?
A convertible note is debt: it carries interest and has a maturity date at which it must be repaid if it has not converted. A SAFE is neither debt nor equity, carries no interest and has no maturity. It is simpler and friendlier to the startup, less protective for the investor.
Can a SAFE be used in France?
It is legally possible but a poor fit for French company law. The local equivalent is the BSA AIR, designed for the SAS form and accepted across the French ecosystem. A SAFE signed by a French company creates friction at conversion.
Sources
Related terms
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