It puts a maximum price on the price of the stock - the lower the price, the more shares you will get. The Valuation Cap is the most important term in this security. Then, calculated by using the Valuation Cap and sometimes the Discount Rate, your SAFE often converts into shares at a lower price than the venture capitalists paid, since you invested earlier.

The number of shares you receive is determined at the next priced financing when professional investors – typically venture capitalists – set the price for preferred stock. It's also a much cheaper and simpler contract than priced equity rounds, which may require months of negotiation and upwards of 30 pages of legalese costing tens of thousands of dollars. You should only invest in a SAFE if you believe that the startup can raise financing in the future from professional investors.Įarly-stage startups use SAFEs to delay the difficult task of figuring out how much a startup is worth. It has been historically used by top startups in Silicon Valley raising money from accredited angel investors. A SAFE grants an investor the right to obtain equity at a future date if the startup sells shares in a future financing.

What is safe money