Guide
What a Crowd SAFE is
A SAFE is a simple agreement for future equity. An investor funds a company now. A Crowd SAFE converts at a priced round. A valuation cap sets the price. It pays out if the company is acquired. A SAFE carries no interest and no repayment date.
How it works / What a Crowd SAFE is
Built for crowdfunding
Fools uses a Crowd SAFE. A Crowd SAFE is a SAFE built for crowdfunding. Investors are pooled. They stay off the company's working cap table until a conversion event. They hold no voting rights. The company owes them the annual report Reg CF requires. A Crowd SAFE is equity only.
For a round of $124,000 or less, the principal executive officer certifies the financial statements. Larger rounds need statements reviewed or audited by an independent accountant.
The Crowd SAFE terms shown here summarize the round. The company's Form C and its Crowd SAFE are the binding documents.
Core terms
- Valuation cap
- The maximum company valuation used for conversion. A lower cap means more ownership for the investor. On Fools the cap is post-money. The founder sets it in the pitch editor.
- Discount
- A percentage off the priced-round price. The founder sets the discount, MFN, and pro rata in the pitch editor.
- Post-money and pre-money
- A post-money SAFE counts the SAFE money when it calculates ownership. Founders and investors see dilution up front.
- Conversion and dilution
- At a qualifying equity financing, SAFEs convert into preferred stock. Founders hold a smaller share afterward. Each SAFE converts at its effective valuation.
Conversion calculator
Ownership at conversion is 0.100% at an effective valuation of $5M. The calculation leaves out option pools, MFN, and side letters.
Crowd SAFE, convertible note, and priced equity
| Term | Crowd SAFE | Convertible note | Priced equity |
|---|---|---|---|
| Debt? | No | Yes. It has interest and a maturity date. | No |
| Complexity | Low to medium | Medium | High |
| Valuation now? | Set later, with a valuation cap | Set later | Set now |
| Fits | A fast raise with clear ownership | Parties that accept debt | Larger rounds with a board |
| Counsel cost | Lower | Medium | Higher |
Fools does not provide investment advice, recommend offerings, or act as a broker. Consult your own securities counsel. Regulation Crowdfunding offerings run through a registered funding portal or broker-dealer.
Compare a YC SAFE and a Crowd SAFE · Start your friends, family, and fools round
This page is not legal or investment advice. Talk to a securities lawyer before you raise.