Simple Agreements for Future Equity (SAFEs) have become one of the most common ways for startups to raise early-stage funding, with 92% of pre-seed rounds using SAFEs in 2025. Because they’re fast, flexible, and easier to close than priced equity rounds, these contracts are commonly used before a business’s valuation is set. But there are trade-offs: valuation caps, discounts, conversion mechanics, and cumulative dilution have implications for what founders ultimately take away.

Below, we’ll explain what a SAFE form is, how a SAFE converts into equity, and common mistakes.

What's in this article?

• What is a SAFE form, and how does it work?
  
• How does a SAFE compare with priced equity financing?
  
• What are valuation caps and discounts?
  
• What are some common SAFE templates, and how are they different?
  
• What investor rights come with a SAFE before conversion?
  
• What are common mistakes founders make with SAFE agreements?
  
• How Stripe Atlas can help
  

What is a SAFE form, and how does it work?

SAFEs are an early-stage capital tool that many startups use to raise money immediately without setting a valuation first. A SAFE form is a financing document that startups use to issue SAFEs.

With SAFEs, an investor puts in capital and in return gets the right to receive equity later, usually when the business raises Series A funding or another priced equity round. Until that happens, the investor doesn’t own shares. Instead, they hold a contractual promise that converts into equity under specific conditions.

How does a SAFE compare with priced equity financing?

A SAFE and a priced equity round raise capital, but they have diverging approaches to timing, valuation, and control.

Here are the major differences:

• Valuation timing: A priced equity round sets a business’s valuation up front and prices shares immediately. A SAFE defers valuation until a later financing round, at which point the market sets the price.

• Fundraising speed: With priced equity rounds, all investors usually close at the same time after lengthy negotiations. SAFEs can be issued on a rolling basis as individual investors commit.

• Investor reward: In a priced equity round, investors buy shares and become stockholders. With a SAFE, investors receive a contractual right to future equity rather than stock.

• Legal complexity: Priced equity rounds require multiple negotiated documents, defined shareholder rights, and amendments to the business’s charter. A SAFE is a standardised agreement that’s less expensive, faster, and easier to execute.

• Governance structure: Priced equity investors often gain voting rights, board seats, or protective provisions immediately. SAFE investors have no governance rights before conversion.

• Cap table visibility: Priced equity rounds show dilution immediately because shares are issued. SAFEs postpone visible dilution until conversion, even though the economic impact is locked in.

• Risk allocation: Priced equity investors lock in ownership regardless of future outcomes. SAFE investors take on more risk up front in exchange for favourable conversion terms later.

• Founder flexibility: Priced equity rounds work well when a business has institutional investors and can predict pricing. SAFEs make more sense when traction is limited and pricing would be speculative.

What are valuation caps and discounts?

Valuation caps and discounts are the core economic levers of a SAFE. They determine how much ownership an investor ultimately receives and how much dilution founders undergo when the SAFE converts.

Valuation caps

The valuation cap sets the maximum valuation used to calculate the SAFE’s conversion price. The cap applies regardless of how high the valuation is in the next priced round. If a business raises at a higher valuation than the cap, the SAFE still converts as though the business was worth only the capped amount.

Lower caps are more attractive to investors but can result in significant dilution if the business performs well. Higher caps reduce dilution but might make the SAFE more difficult to sell or less compelling to early backers.

A valuation cap isn’t the business’s current valuation and doesn’t price the business today. That cap is a future pricing mechanism that applies only at conversion, and it exists solely to protect early investors.

Discounts

A discount gives SAFE investors the right to convert at a reduced price per share compared with new investors in the priced round. A 20% discount, for example, means the SAFE converts at 80% of the round’s share price.

Discounts are straightforward and predictable but offer limited protection if the business’s valuation greatly increases. They’re often used when founders and investors can’t agree on a valuation cap or when the valuation jump is expected to be modest.

Valuation caps and discounts together

When a SAFE includes valuation caps and discounts, the investor typically converts using whichever term results in the lowest price per share. Founders should assume the more dilutive outcome will apply.

What are some common SAFE templates, and how are they different?

Small structural differences in SAFE templates can have big impacts. They change how ownership is calculated and how dilution occurs.

Here’s how to evaluate each type:

• Valuation cap–only SAFE: This template includes a valuation cap but no discount, so even if the equity round is priced higher, the conversion price is determined solely by the cap. This is a common agreement type because it gives investors clear upside protection without stacking incentives.

• Discount-only SAFE: This type of SAFE offers a discount on the next round’s share price but doesn’t cap the valuation. It’s simpler and less dilutive if the valuation increases sharply, but it provides less downside protection for investors.

• Valuation cap and discount SAFE: When a valuation cap and a discount are included, the investor converts using whichever method results in the lowest share price. From the founder’s side, this means the more dilutive outcome will apply.

• Uncapped SAFE with most favoured nation (MFN) clause: This type of SAFE has neither a cap nor a discount but includes an MFN provision that lets the investor adopt any better terms granted to shareholders later. This template signals trust while preserving flexibility but can propagate improved terms across multiple SAFEs.

• Pre-money SAFEs: SAFEs can be pre-money or post-money. Pre-money SAFEs calculate ownership before accounting for other SAFEs, which means SAFE holders dilute one another at conversion.

• Post-money SAFEs: Post-money SAFEs fix ownership percentages at signing. This makes dilution clearer but cumulative across investors.

• Jurisdiction-specific variants: Some SAFE templates adapt the same economic principles for legal systems outside the US. They adjust for local corporate and securities laws while keeping the fundamentals of conversion the same.

What investor rights come with a SAFE before conversion?

SAFEs provide investors with shareholder rights only after conversion happens. Before that, investor rights are narrow.

Here’s what to expect before conversion:

• No ownership or voting rights: SAFE holders aren’t shareholders until conversion. Until then, they have no voting power and no say in shareholder approvals.

• No dividends or distributions: Because SAFE holders don’t own shares, they aren’t entitled to dividends or other shareholder payouts before conversion.

• Limited information rights: Standard SAFE forms exclude rights to financial statements or ongoing disclosures. Any updates shared are typically voluntary rather than contractual.

• No board or governance control: A SAFE doesn’t grant board seats, observer rights, or decision-making authority. Founders retain full control unless separate agreements say otherwise.

• No automatic participation in future rounds: SAFE investors don’t inherently have the right to invest in later finance rounds. Any pro rata rights must be granted separately.

• Priority in exit or liquidation scenarios: If the business is acquired or terminated before conversion, the SAFE usually does grant the investor the right to recoup. They can receive their investment back in its original form or convert it into equity based on the agreed terms—whichever yields more value.

What are common mistakes founders make with SAFE agreements?

When startup founders have problems with SAFEs, the issues usually don’t come from the agreement—they often have more to do with how it’s used over time.

Here's what to avoid:

• Losing sight of cumulative dilution: Because SAFEs don’t immediately show up as issued shares, founders often underestimate how much ownership they’ve promised. Multiple SAFEs stack, and the full impact of dilution becomes visible only at conversion.

• Not modelling conversion scenarios: Accepting SAFE terms without doing stress tests on different valuation outcomes can lead to surprises. Founders should understand how each SAFE converts across a realistic range of future prices.

• Mixing SAFE structures without intent: Combining pre-money and post-money SAFEs or issuing SAFEs with widely different caps can create confusion. Early consistency minimizes friction later.

• Setting caps without context: Choosing a cap that’s far above or below market expectations can distort incentives. Extremely low caps can overdilute founders, while overly high caps can weaken investor alignment.

• Using SAFEs longer than they make sense: SAFEs are designed for early-stage fundraising. Still relying on them once the business is ready for a priced round can delay necessary structure and clarity.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise with SAFEs, open a bank account, and accept payments within two working days from anywhere in the world.

Join 100K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You'll choose your company structure, instantly confirm whether your company name is available and add up to four co-founders. You'll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers and then e-sign all your documents. Any co-founders will receive emails inviting them to e-sign their documents, too.

Fundraising with SAFEs

After incorporating your C corporation (C corp), Atlas helps you obtain board approval to fundraise and send SAFEs to investors. After signing a SAFE, your investors can transfer funds to the bank account of your choice.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your Employer Identification Number (EIN). Founders with a US Social Security number, address and mobile phone number are eligible for IRS expedited processing, whilst others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g. copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you – whether you are a US or non-US founder – with USPS Certified Mail and tracking. You'll receive a signed 83(b) election and proof of filing directly in the Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world's leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution and tax compliance.

$50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance and operations from industry leaders like AWS, Carta and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you'll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payment volume.

Learn more about how Atlas can help you set up your new business quickly and easily or get started today.