SAFE Fundraising: The Smart Way to Raise Capital

Everything you need to know about raising capital with SAFE notes—simplified insights, expert strategies, and real-world case study to help you scale faster with less dilution.

and

Mar 19, 2025

Raising capital as a founder can feel like navigating a maze—complex, time-consuming, and filled with tough decisions. What if there was a faster, simpler way to secure funding without giving up too much control? Enter SAFE (Simple Agreement for Future Equity) notes, a game-changing tool that has helped startups like Notion raise millions while keeping their focus on growth.

In this edition, we’re breaking down everything you need to know about SAFEs: how they work, when to use them, and their benefits and risks. Plus, we’re diving into a real-life case study on Notion’s $10M SAFE round and providing exclusive fundraising resources—from cap table management tools to investor lists—to help you raise capital more efficiently.

Let’s get started! 🚀

What Is a Simple Agreement for Future Equity (SAFE)?

A Simple Agreement for Future Equity (SAFE) is a founder-friendly investment tool that allows startups to raise capital quickly without immediately setting a valuation. Created by Y Combinator, SAFEs offer investors the right to receive equity in the future when the startup raises a priced funding round.

Unlike convertible notes, SAFEs don’t accrue interest or have a maturity date, making them a flexible and efficient way for early-stage startups to secure funding while focusing on growth. Investors benefit from the potential upside of equity, often at a discount or with a valuation cap.

By using SAFE agreements, founders can raise funds faster, reduce legal complexity, and avoid unnecessary dilution—all while keeping their focus on scaling the business.

How Does a SAFE Work?

A Simple Agreement for Future Equity (SAFE) allows investors to fund a startup now in exchange for future equity when the company raises its next priced round. Unlike traditional investments, SAFEs:

Have no interest or maturity date, making them founder-friendly.
Convert to equity at a discount or valuation cap, rewarding early investors.
Give no immediate ownership or voting rights, reducing startup obligations.

Once a triggering event (like a funding round) occurs, the SAFE converts into shares, often at a lower price than future investors will pay.

Pre-Money vs. Post-Money SAFEs

When issuing SAFEs, founders have two options: pre-money or post-money valuation caps. The key difference lies in how ownership is determined:

🔹 Pre-Money SAFEs: These do not set a fixed ownership percentage for investors. Instead, ownership is calculated after a priced round. This approach is more founder-friendly but makes it harder to predict final ownership stakes.

🔹 Post-Money SAFEs: These lock in an investor’s ownership percentage upfront, offering more clarity for both the startup and investors. However, they dilute founders' ownership more in future rounds.

Choosing the right SAFE structure depends on your fundraising strategy and how much dilution you're willing to accept.

Types of SAFE Notes

Cap, No Discount: Includes a maximum valuation but no discounted price per share.
Discount, No Cap: Offers a discounted price per share but no maximum valuation.
Cap and Discount: Combines a maximum valuation and a discounted price per share.
Most Favored Nation (MFN): No cap, no discount—investors receive the same terms as subsequent investors.

These variations provide different benefits and considerations for both startups and investors. Consulting legal and financial professionals is essential to determine which type best fits your situation.

Key SAFE Terms You Need to Know

Understanding these terms is critical to successful SAFE fundraising:

Valuation Cap: The maximum valuation at which a SAFE converts into equity, ensuring early investors get better terms than later ones.
Discount Price (Conversion Discount): A lower price per share offered to SAFE investors when their investment converts into equity.
Most Favored Nation (MFN) Clause: Ensures early SAFE investors receive the best terms offered to later investors.
Qualifying Round: The priced funding round at which a SAFE converts into equity.
Exit Event: A change of control, such as an IPO or acquisition, triggering SAFE investor payouts before conversion.

How Xartup Helps You Fundraise Smarter

Instead of blindly reaching out to investors, use a strategic approach:

✅ Leverage Xartup’s Investor Database to find the right VCs based on sector & stage.

✅ Join the Xartup Fellowship to access mentorship & growth resources.

✅ Get Technical Credits to test your product and many more.

🚀 Ready to optimize your fundraising? Join xartup.com

Apply to Xartup

When to Use a SAFE Note

A SAFE note and a convertible note are both tools used in startup fundraising. Here are some situations where SAFEs are a better fit:

✅ Need a fast and simple fundraising method – SAFEs are quicker and easier to execute than convertible notes.

✅ Uncertain valuation – If it's difficult to determine a fair valuation, a SAFE allows postponing that decision until a future round.

✅ Early-stage fundraising – SAFEs are ideal for startups in their seed or pre-seed stage.

✅ Bridge to the next round – SAFEs can help startups secure additional capital while finalizing larger funding deals.

How to Issue SAFE Notes for Your Startup

Raising funds through SAFE notes is a streamlined process that helps startups secure early-stage investments without immediate valuation concerns. Here’s how you can do it efficiently:

Define the Terms
Outline key terms such as the funding goal, valuation cap, and discount rate. Consulting legal counsel ensures compliance and clarity.
Draft the SAFE Agreement
Prepare a legally binding agreement specifying investor rights and trigger events. Many startups use templates for efficiency but customize them with legal input.
Issue Notes & Collect Funds
Secure investor commitments, finalize agreements, and record transactions in your cap table for transparency. Using platforms like Cake simplifies and accelerates this process.
Convert to Equity
Upon a priced funding round, SAFE notes convert into equity at pre-agreed terms. This benefits both startups and investors while minimizing legal complexities.

SAFE notes offer speed, simplicity, and flexibility, making them ideal for early-stage fundraising or bridging rounds. Managing them properly ensures investor trust and a smoother fundraising journey.

Benefits of SAFE Notes

SAFE notes offer advantages for both startups and investors, primarily due to their simplicity and flexibility.

For Startups

Simplified Fundraising: SAFE agreements are quicker and easier to execute than traditional equity or debt financing.
Deferred Valuation: Startups can postpone valuation discussions until a later funding round, avoiding premature undervaluation.
Lower Dilution: Compared to traditional equity financing, SAFEs can help founders retain more ownership.
No Debt Obligation: Unlike convertible notes, SAFEs don’t accrue interest or require repayments.

For Investors

High Upside Potential: If the startup grows, early investments can yield significant returns.
Lower Entry Cost: Investing at an early stage offers a lower valuation entry point.
Priority Benefits: Some SAFEs grant early investors better terms, such as discounts in future rounds.
Straightforward Exit Strategy: Once converted into equity, investors can hold shares or exit via secondary sales, acquisition, or IPO.

SAFEs streamline the fundraising process, benefiting both parties while fostering long-term growth and collaboration.

Risks and Considerations of SAFE Notes

While SAFEs simplify fundraising, they come with risks. Deferring valuation to a later round may lead to overvaluation, making future funding difficult if growth expectations aren’t met. Although SAFEs initially reduce dilution, founders may face unexpected equity loss when these notes convert in later rounds, especially if fundraising occurs at a lower valuation.

Investors also don’t gain immediate ownership or voting rights, and if the startup fails before conversion, they may lose their investment entirely. Unlike debt instruments, SAFEs don’t offer creditor protections in the event of liquidation, making them riskier than traditional funding options.

Case Study: How Notion Raised $10M Using SAFE Notes to Scale Rapidly

Background

Notion, the all-in-one workspace platform, is a great example of a startup that leveraged SAFE notes to raise funds quickly without giving up too much equity too early. Founded in 2013, Notion initially struggled to gain traction but later became one of the fastest-growing productivity startups.

The Fundraising Challenge

In 2018, Notion was in a strong growth phase but wanted to delay a priced equity round until they could command a higher valuation. They needed quick capital to hire talent and scale but didn’t want to be locked into a lower valuation.

The SAFE Note Strategy

Notion raised $10 million using SAFEs from prominent investors like First Round Capital and Sequoia. By doing this, they:

Deferred their valuation to a later round when their growth justified a higher price.
Kept control by avoiding dilution early on.
Streamlined fundraising with minimal legal complexity.

The Outcome

By 2020, Notion was valued at $2 billion—a massive jump from its earlier SAFE round. Investors who participated in the SAFE round benefited from lower-priced equity, while Notion successfully raised funds without an immediate valuation burden.

Key Takeaways for Founders

✅ Use SAFEs strategically to raise capital while delaying valuation discussions.
✅ Keep fundraising simple to avoid distractions from core business growth.
✅ Plan for future dilution—SAFE conversions can impact founder equity later.

Tools & Resources for Fundraising

1. Free or Discounted Cap Table Software:

Carta Launch: Offers a free platform for startups to manage cap tables, issue equity, and streamline fundraising processes.

2. Lists of Active Angel Investors & VC Firms Investing via SAFEs:

Xartup Investor List: A curated directory of active angel investors and venture capital firms, detailing those who commonly invest through SAFE notes.

3. Pitch Deck Templates and Best Practices:

Business Insider Pitch Deck Library: Provides real-world examples of pitch decks from successful startups, offering insights into effective fundraising strategies.