Guide
What a Crowd SAFE is
A SAFE (Simple Agreement for Future Equity) lets a backer fund a company now and convert into equity later, at terms set by a valuation cap and/or a discount. Conversion happens at a priced round or an acquisition. A SAFE is not a loan: no interest, no repayment date.
How it works / What a Crowd SAFE is
Adapted for many small checks
Fools uses a Crowd SAFE, a SAFE adapted for crowdfunding's many small backers. Backers are pooled and kept off the company's working cap table until a real conversion event, with no voting rights and no ongoing rights beyond the annual report Reg CF requires. That keeps the founder's cap table clean and means near-zero ongoing accounting. It is equity only.
Crowd SAFE templates and terms shown here are illustrative samples only. Real legal documents and qualified securities counsel are required before any actual investment.
Core terms
- Valuation cap
- The maximum company valuation used for conversion. A lower cap means more ownership for the backer. Guidance for many early raises: $5M to $10M, not a rule.
- Discount
- An optional percentage off the priced-round price. The backer gets the better of cap or discount.
- Post-money vs pre-money
- Post-money SAFEs calculate ownership after including the SAFE money, making dilution more transparent for founders and backers.
- Conversion and dilution
- At a qualifying equity financing, SAFEs convert into preferred stock. Founders dilute; earlier SAFE holders share the cap table according to their effective valuation.
Simple conversion calculator
Illustrative ownership at conversion: 0.063% at an effective valuation of $8M. Ignores option pools, MFN and side letters. An illustration only.
Crowd SAFE vs note vs priced equity
| Term | Crowd SAFE | Convertible note | Priced equity |
|---|---|---|---|
| Debt? | No | Yes (maturity, interest) | No |
| Complexity | Low to medium | Medium | High |
| Valuation now? | Deferred (cap or discount) | Deferred | Set now |
| Best for | Speed, clarity of ownership | Debt-comfortable parties | Larger rounds, boards |
| Counsel cost | Lower, typically | Medium | Higher |
Fools does not provide investment advice, recommend offerings, or act as a broker. Consult your own securities counsel. Real offerings run through a registered funding portal or broker-dealer under Regulation Crowdfunding.