The YC SAFE

And why it's awesome

There’s a lot packed into a YC Standard SAFE. For many founders, it can feel like a heavy responsibility—taking someone else’s money, signing a legal document, and committing to an uncertain future. But if you strip away the formalities and legalese, the SAFE, at its core, is an astonishingly simple agreement:

If the entrepreneur decides to raise an equity round, the investor gets a certain amount of equity. That’s it.

Everything else—the optionality, the flexibility, the absence of immediate obligations—makes the SAFE arguably the greatest fundraising document ever created.

The SAFE as a Fancy Zero-Interest Loan

A SAFE isn't equity (yet), and it isn’t really debt either—at least, not in the traditional sense. But if you think about it in practical terms, it behaves a lot like a zero-interest loan where the collateral isn’t your company; it’s your reputation.

When an investor funds a startup through a SAFE, they’re not getting board seats, control rights, or even a definitive guarantee that they’ll ever own part of the company. What they’re really doing is making a reputational bet on the founder. They’re saying:

"Here’s some money. I trust that you’ll try to build something valuable. And if you do, and you decide to raise an equity round, I’ll get my fair share."

That’s a very different dynamic from traditional venture financing. In most cases, a SAFE holder has no real legal recourse if things go sideways. If a founder decides to shut the company down, pivot into something completely unrelated, or even act in bad faith, investors can’t force their hand.

The Loose But Powerful Nature of SAFEs

Because of this flexibility, SAFEs put almost all of the power in the entrepreneur’s hands. They enable founders to operate with an immense degree of freedom—sometimes to a fault. I’ve seen cases where founders outright committed fraud on SAFEs, and investors had virtually no ability to do anything about it. I’ve also seen founders explore unconventional financing structures that, while legally permissible, would likely enrage their investors if executed.

For instance, if a founder wanted to, they could theoretically restructure a SAFE-backed company into something resembling a dividend-yielding asset. They could start distributing profits to themselves and early employees without ever triggering an equity conversion. Would that be a bad-faith move? Almost certainly. Would it be illegal? Probably not. But it would break the implicit contract between founder and investor—the trust that underpins the SAFE in the first place.

The True Meaning of a SAFE Investment

At its heart, a SAFE is a bet on the unknown. It’s an investor saying, "I know you don’t have it figured out yet. But if this turns into something, and if you decide to build it into a venture-backed company, I want to be a part of it AND I trust you to take care of me for supporting you at the very beginning."

For founders, this should be freeing. It means you don’t have to know exactly what your company will become. It means you can explore, iterate, and pivot without being shackled to traditional investment structures. But it also means that, when the time comes, you have a moral (if not legal) obligation to do right by the people who believed in you early.

Investors Should Understand This

The best investors understand this. I personally understand that anything goes in my portfolio, so I back founders that I trust. If it doesn’t work - that’s OK, it’s part of the game (and the game is really really hard, harder than most realize). In most (if not all cases), if you fail, I’ll actually like you more for it, not less. I like people who fail and learn from it, because I also know how hard it is. If you screw me over in the worst of ways - that’s ok too, I’ll probably be mad, but it’s in our terms. I can just call my reputation collateral.

Why This Matters Now

I bring this up because I’m invested in a lot of companies right now where the next steps aren’t obvious. Some of them could easily go the traditional venture route—raising a Series A, pushing for hypergrowth, and following the standard playbook. But for others, particularly in AI, the best move isn’t as clear-cut.

The SAFE structure is intentionally loose to give founders flexibility, but that doesn’t mean anything goes. If you’ve raised on SAFEs and you’re considering an unconventional path forward, just remember: your earliest investors weren’t just funding an idea. They were funding you.

Whatever you decide to do, act in a way that reflects that trust. That’s all anyone can really ask.