SAFE vs Term Sheet — Which One Do You Need?
A SAFE (Simple Agreement for Future Equity) is a signable investment contract: the investor wires money now and receives shares later, when a priced round happens. There is no valuation negotiation today — just a cap and/or discount that determine the future conversion price. It is the default instrument for pre-seed and seed rounds in the US and increasingly elsewhere.
A venture term sheet is different: it is a mostly non-binding summary of a priced equity round — valuation, liquidation preference, anti-dilution, board composition, and investor rights. Lawyers turn it into definitive documents (stock purchase agreement, shareholders' agreement, amended charter). Use it from Series A onward, or for a priced seed.
Why Jurisdiction Matters
The famous YC SAFE assumes a Delaware C-Corp — its mechanics (automatic conversion, preferred stock, charter references) don't map 1:1 onto other legal systems:
| Jurisdiction | Entity | Template family | Watch out for |
|---|
| 🇺🇸 United States | Delaware C-Corp | YC post-money SAFE · NVCA term sheet | 83(b) elections, 409A interplay, blue-sky filings |
| 🇬🇧 United Kingdom | Private Limited Company | Cooley GO SAFE (E&W) · BVCA term sheet | SEIS/EIS prefers ASAs; Companies Act 2006 pre-emption (ss. 561–562) |
| 🇸🇬 Singapore | Pte. Ltd. (Company Limited by Shares) | Localized SAFE · VIMA-informed term sheet | Companies Act 1967 s.161 share-issue authority; SIAC arbitration common |
This builder swaps entity type, currency, governing law, statutory references, and dispute forum per jurisdiction — but a template can never replace local counsel, especially around tax-incentive schemes (QSBS, SEIS/EIS) and regulatory filings.
The Terms That Actually Move Money
Valuation cap & discount (SAFE)
The cap sets the maximum conversion valuation: invest $500K on an $8M post-money cap and you own at least 6.25% at conversion. The discount (typically 10–30%) converts below the next round's price. With both, the investor takes whichever yields more shares. An uncapped, no-discount SAFE gives the early investor no price advantage at all.
Liquidation preference (term sheet)
1× non-participating is the market standard: on exit, the investor takes back 1× their money or converts to their ownership share — whichever is greater. Participating preferred "double dips" (money back and pro rata share of the rest), and 2× participating is aggressive enough to distort founder incentives; both invite pushback in later rounds.
Anti-dilution
Protects investors in a down round by repricing their conversion. Broad-based weighted average (standard) adjusts moderately based on the size of the down round; full ratchet reprices to the new low price regardless of size — the harshest form for founders.
Board & protective provisions
A typical early board is 2 founders + 1 investor. Protective provisions give investors veto rights over major actions (sale, new senior stock, charter changes) regardless of board math — read them as carefully as the board split.
How This Builder Works
- Step 1: pick jurisdiction (auto-fills entity type, currency, governing law) and document type.
- Step 2: enter deal terms; advanced terms adapt to the document type. The live sidebar shows implied ownership as you type.
- Step 3: get a plain-English summary of every term, a highlighted document preview, and real exports — PDF, editable DOCX, or plain text for counsel.
Not legal advice. The generated document is a template baseline modeled on standard market documents (YC SAFE, Cooley GO, NVCA, BVCA, VIMA structures). It has not been reviewed by an attorney and must not be signed without local counsel review.
Frequently Asked Questions
What is the difference between a SAFE and a convertible note?
A convertible note is debt: it has a maturity date and accrues interest, and can theoretically be called. A SAFE is not debt — no maturity, no interest — it simply waits for the next priced round, an exit, or dissolution.
Post-money vs pre-money SAFE cap?
Since 2018 the YC standard is post-money: the cap includes all SAFE money, so each investor's minimum ownership is fixed and dilution from other SAFEs lands on founders. Pre-money caps (the old style) socialize that dilution across SAFE holders.
Is a term sheet binding?
Mostly no — it is an agreement to negotiate. Exceptions that are binding by design: confidentiality, exclusivity ("no-shop"), and sometimes expense clauses. Walking away from agreed economics is still costly reputationally.
Can I use this for an SEIS/EIS round in the UK?
Be careful: HMRC's advance-assurance practice favours Advance Subscription Agreements (ASAs) with a longstop date over open-ended SAFEs. Ask UK counsel before using a SAFE if SEIS/EIS relief matters to your investors.
What if my company is incorporated somewhere else?
Pick the closest template family and have counsel localize it — or better, ask counsel which instrument is standard in your market. The plain-English summary is still useful for understanding the economics.