We raised a Seed investment several years ago in the form of a SAFE. We have not needed to raise more capital and the VC is pressuring us to convert the SAFE to equity even though a conversion event hasn’t yet occurred. What should we do?

SAFEs are fine enough vehicles for tiny investments, or as bridges to a larger round.

But they aren’t so great for institutional investors (i.e., VCs) that have to hold on to them for more than 12–18 months.


  • Tax issues. The capital gains holding period likely does not start on a SAFE until it converts. This can be a huge negative if a SAFE doesn’t convert for a long time, especially now when VC partners now have a 3-year holding period for long-term capital gains in the new tax laws.
  • Valuation and ownership reporting issues. Most auditors do not allow VCs to value a SAFE or to estimate the ownership (since you don’t really know how many shares will be sold in the future round). So it sits in your reporting as an investment of no known ownership or value. This essentially adds zero value to your annual and quarterly portfolio measurement and reporting.
  • Bridge-to-nowhere issues. This is subtle, but a SAFE that never converts is seen as a sign of a struggling company (fair or not). This is bad for VC reporting as well.

A small SAFE and/or a short SAFE is no big deal for VCs.

But a large SAFE that doesn’t convert for a long time is a minor headache / negative. The more material the investment is to the VC, the bigger the headache.

It’s a reasonable ask, if not necessarily one that you have to honor.

But it may be worth it to keep the VC in the game. VCs really don’t like SAFEs, in part for the reasons listed above. Keeping your investors happy has many benefits, especially if the ask doesn’t really change any of the economics of the investment.

Having said that, conversion without a new, lead investor is a smidge more complicated than it sounds. Who will negotiate all the detailed terms? So I’d ask in return, to keep the terms very vanilla and simple, and for the VC to pay 50% of the legal fees for the conversion (splitting it is fair in this case IMHO). If you can’t get that agreement, I wouldn’t convert the SAFE.

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Published on February 25, 2019

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