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A SAFE note (Simple Agreement for Future Equity) is an investment instrument often used in early-stage startup financing. It's an agreement between a startup and an investor that provides the investor with rights to future equity in the company, typically upon specific triggering events like a priced equity funding round or the sale of the company.
SAFE notes were created by Y Combinator as a simpler alternative to convertible notes. They're called 'SAFE' because they're intended to be simpler and safer for both the founder and the investor. They don't accrue interest or have a maturity date like convertible notes do, reducing complexity. It's important to note that while SAFE notes can streamline early-stage fundraising, they can also create challenges down the line, such as when the company raises priced rounds and these notes convert into equity.
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