{"id":112638,"date":"2023-08-22T14:39:32","date_gmt":"2023-08-22T06:39:32","guid":{"rendered":"https:\/\/zegal.com\/?p=112638"},"modified":"2024-03-08T23:35:57","modified_gmt":"2024-03-08T15:35:57","slug":"negotiating-valuation-cap-on-a-safe-note","status":"publish","type":"post","link":"https:\/\/zegal.com\/en-hk\/blog\/post\/negotiating-valuation-cap-on-a-safe-note\/","title":{"rendered":"What Is a SAFE Valuation Cap?"},"content":{"rendered":"\n

A SAFE or Simple Agreement for Future Equity<\/a> is an alternative to convertible notes<\/a>.<\/p>\n\n\n\n

Created in 2013 by Y combinator in the silicon valley accelerator program, SAFE allows growing businesses to organize and structure their seed business free from interest rates or maturity dates.<\/p>\n\n\n\n

Simply put, it is an agreement between an investor and the startup that allows the investor to purchase stocks in the company during future equity rounds.<\/p>\n\n\n\n

A SAFE agreement is a simple and comparatively short document and consists of a negotiating valuation cap as a detail.  <\/p>\n\n\n\n

<\/span>What is a SAFE note?<\/span><\/h2>\n\n\n\n

A SAFE note is a warrant that allows the investor to secure their option to purchase company shares in the future. It addresses the challenges of convertible notes and is a viable option for investors and founders.<\/p>\n\n\n\n

A SAFE note benefits startups<\/a> because they (unlike convertible notes) are not loans and do not bear interest. An entrepreneur should be cautious while accepting SAFE notes as a currency because it guarantees the investor access to equity in their company.<\/p>\n\n\n\n

A SAFE note may be capped or uncapped.<\/p>\n\n\n\n

<\/span>Uncapped vs. Capped SAFE notes<\/span><\/h2>\n\n\n\n

The terms \u201ccapped\u201d and \u201cuncapped\u201d refer to potential limits (or the lack thereof) on the valuation at which an investor\u2019s SAFE note will convert to equity.<\/p>\n\n\n\n