SAFE and iSAFE notes explained

By Abha Lohia · Startup Decoded

A SAFE, short for Simple Agreement for Future Equity, is a contract in which an investor pays money now and receives shares later, at the next priced round. It is not a loan and has no interest or repayment date.

What is a SAFE?

A SAFE is a short contract that gives an investor the right to receive shares in a startup when a future event happens, usually the next equity round. The investor pays money today. The startup does not owe interest and does not have to pay the money back by a date. The investor gets shares only if the company raises a priced round, is sold, or lists.

The SAFE was created by the US accelerator Y Combinator in 2013 as a faster, cheaper alternative to the convertible note. It spread quickly across the world because it is short, standard and takes hours to sign. The standard forms are public and widely copied.

What are the terms in a SAFE?

The two main terms are the valuation cap and the discount, just as in a convertible note. The cap sets the highest valuation at which the SAFE converts. The discount gives a lower price than new investors. Some SAFEs have a cap only, some a discount only, and some both.

The standard form also describes what happens in other events. If the company is sold before a priced round, the investor gets either their money back or the amount they would get by converting, whichever is higher, as set out in the form. If the company is wound up, the SAFE holder ranks after creditors but ahead of ordinary shareholders. A 'most favoured nation' version lets the holder take better terms if the company later gives them to another SAFE holder.

What is the difference between a SAFE and a convertible note?

A convertible note is a loan: it carries interest and a maturity date, and the holder can ask for repayment. A SAFE is not a loan. It has neither. This makes it simpler for the founder, because there is no debt on the books and no deadline that puts pressure on the company.

For the investor, the trade-off is that a SAFE gives fewer rights if things go wrong. There is no promise to repay and no claim as a creditor. Investors therefore often use a SAFE for small early cheques and prefer a convertible note or a priced round for larger amounts. In both, the conversion maths with a cap and a discount is similar.

How is a SAFE treated if the company never raises again?

This is the main question for the investor. In the standard US form, if the company is sold or wound up before a priced round, the holder is repaid first from what is available, ahead of ordinary shareholders, but behind creditors. If the company simply stops operating, there is no maturity date that forces repayment, so the SAFE holder may wait indefinitely and may lose the money.

That is why investors treat a SAFE as a bet on the next round and not as a safe place to keep money. For founders it means a lighter burden, but also a duty to keep the investor informed. A clear update every few months builds trust and makes the next conversation easier.

Does a SAFE work under Indian law?

A US-style SAFE does not fit neatly into Indian company law. Under the Companies Act, 2013, money received from an investor either becomes shares, is a loan, or is a deposit, and each has strict rules. A SAFE that promises shares later, without clear terms for allotment, risks being seen as a deposit or as an unlawful arrangement. The foreign exchange rules add pricing and reporting limits when the investor is outside India.

For this reason, a plain US SAFE signed with an Indian company is generally not considered safe by lawyers. Indian founders who want to raise from US investors often set up a US parent company (a 'flip'), which can sign a SAFE without these problems. Many Indian lawyers advise using a compulsorily convertible instrument or a convertible note for an Indian company instead.

What is the iSAFE note?

The iSAFE, short for India Simple Agreement for Future Equity, was introduced by the investor 100X.VC as an Indian-law version of the SAFE for early-stage startups. It aims to give founders the speed of a SAFE with a structure that fits Indian company and foreign exchange rules.

The iSAFE is a standard, published document with a cap and a discount, and it converts into shares at the next priced round. As of October 2026, it remains a contractual instrument created by market practice, not a category defined by a statute. That means the details, such as how the investment is recorded in the books and whether it counts as share application money, depend on the legal advice taken. Founders should have a lawyer confirm the structure for their case.

What are pre-money and post-money SAFEs?

The standard form changed in 2018, from a pre-money to a post-money version. In the pre-money SAFE, the cap applies to the company's value before all the SAFE money counts, so each new SAFE shifts the founders' percentage. In the post-money SAFE, the cap includes all the SAFE money, so each investor knows exactly what percentage they will hold, and the founders carry the dilution.

The post-money version is now the common one in the US and its idea has influenced Indian forms too. Whichever form is used, founders should count the percentage that every SAFE and note will take before they agree to another one.

Who uses SAFEs and iSAFEs?

They are used mostly at pre-seed and seed, by angel investors, small funds and accelerators that write small cheques into many companies. Some accelerators publish standard terms for every company in their batch. A SAFE fits when the company is too young for a valuation and the investor values speed.

They are less suited to larger rounds, to companies with several investors who need to coordinate, and to companies that expect a long gap before a priced round. When a company stacks many SAFEs at different caps, the dilution at conversion can surprise founders.

What should founders check?

Model conversion of every SAFE on the cap table before agreeing a priced round. Be careful with uncapped SAFEs and with a very high cap, which can hurt the investor, and a very low cap, which can hurt you. Note that many investors want a pro-rata right written in a side letter.

Check the tax and accounting treatment with a chartered accountant. Ask whether the instrument is allowed for the investor's residence status. This guide is general information; ask a professional about the current position before signing.

In an iSAFE or any Indian-law structure, the company records the receipt, issues the document and later issues shares when the trigger happens. The money should not sit as an unexplained credit in the books. The way it is recorded affects compliance with the Companies Act, 2013, which has strict rules on money received from the public and on share application money.

A good practice is to keep a signed copy of the instrument, a board resolution approving the issue, and a note of the investor's details for foreign exchange reporting where relevant. These records are what a later investor's lawyers will ask to see in due diligence.

A worked example

Example with made-up numbers. An investor puts ₹2 crore into a SAFE-type instrument with a valuation cap of ₹20 crore and no discount. Eighteen months later the startup raises a priced round at ₹50 crore before the new money. The investor's ₹2 crore converts at the cap price, as if the company were worth ₹20 crore, giving about 10 per cent of the shares before the new round (₹2 crore divided by ₹20 crore). If the SAFE had no cap, the same ₹2 crore would buy only 4 per cent at the ₹50 crore price. The cap therefore gave the early investor 2.5 times as many shares. Founders and earlier holders bear that dilution.

Recent examples on StopDown

Lissun raises Rs 2.77 crore from existing investors 17 June 2026
Satark AI raises pre-seed funding via convertible notes 6 April 2026

Questions people ask

What does SAFE stand for?

Simple Agreement for Future Equity. It is a contract where an investor pays now and receives shares at a later priced round. It is not a loan and has no interest.

What is iSAFE?

It is an Indian-law version of the SAFE, launched by the investor 100X.VC, built to fit Indian company and foreign exchange rules. It also converts into shares at a future round, with a cap and a discount.

Can I use a US SAFE for an Indian company?

It is generally not advised. Indian law has no category for it and the foreign exchange rules limit it. Lawyers usually suggest an Indian-law instrument or a convertible note instead.

Is a SAFE debt?

No. A SAFE has no interest and no repayment date, so it is not a loan. It is a right to receive shares if a trigger event happens.

Does a SAFE have a valuation cap?

Often, yes. The cap sets the highest valuation at which it converts. Some SAFEs have a discount instead, or both, and some have neither.