Can I use Y Combinator’s SAFE as it is for friends and family round without hiring a lawyer to look at it?

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JASON LEMKIN

I say yes if the SAFE has a valuation cap and everyone is investing a relatively small amount.

There are several versions of a SAFE, and in general, SAFE’s aren’t particularly investor-friendly. They also contain almost zero investor protections at all. Lawyers generally don’t like them, as from an advocate perspective, they are “worse” than other vehicles you can use (equity is best, customized convertible debt maybe better, SAFE third)

However … they are pretty darn straightforward if the goal is simply to hand a small company $X for an approximate price (the cap). You can paper this quickly and easily right off the YC website. And key — lots of folks (like me and others) are already familiar with a SAFE. If you send over some random form from a law firm, even if it’s more investor friendly — that creates a whole level of uncertainty because it’s an unknown.

If you are investing $25k at a $3m cap in hopes of a $1b+ exit, a SAFE is a great, fast, efficient way to do it. The minor ways a SAFE is “bad” won’t matter in a small, truly angel investment hoping for a homerun (price, i.e., the cap, is the only term that will really matter in this scenario), and it’s a super simple and founder-friendly way to do this investment.

If you are investing $1m to own 50% with a hope of tripling your money — DO NOT USE A SAFE. Use a very different vehicle, with lawyers, and lots more scrutiny.

E.g. … When I invest a small amount personally, or even a small amount as a VC, I often use a SAFE. It’s fine. When I invest > $750k as a VC, I never do.

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Published on June 5, 2016
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