SAFE: MFN, No Valuation Cap, No Discount (US) by Y Combinator
The Y Combinator SAFE: MFN, No Valuation Cap, No Discount (US) governs how investor funds convert into equity without applying a valuation cap or discount. Instead, it ensures fairness by giving investors the right to match any superior terms offered in subsequent SAFEs. It is part of Y Combinator’s widely adopted library of open, lawyer-vetted standard financing documents.
THIS INSTRUMENT AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED IN THIS SAFE AND UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM.
SAFE
(Simple Agreement for Future Equity)
THIS CERTIFIES THAT in exchange for the payment by [investor name] (the “Investor”) of [purchase amount] (the “Purchase Amount”) on or about [effective date], a [state of incorporation] corporation (the “Company”), issues to the Investor the right to certain shares of the Company’s Capital Stock, subject to the terms described below.
This Safe is one of the forms available at http://ycombinator.com/documents and the Company and the Investor agree that neither one has modified the form, except to fill in blanks and bracketed terms.
Events
(a) Equity Financing. If there is an Equity Financing before the termination of this Safe, on the initial closing of such Equity Financing, this Safe will automatically convert into the number of shares of Standard Preferred Stock equal to the Purchase Amount divided by the lowest price per share of the Standard Preferred Stock.
In connection with the automatic conversion of this Safe into shares of Standard Preferred Stock, the Investor will execute and deliver to the Company all of the transaction documents related to the Equity Financing; provided, that such documents (i) are the same documents to be entered into with the purchasers of Standard Preferred Stock, and (ii) have customary exceptions to any drag-along applicable to the Investor, including (without limitation) limited representations, warranties, liability and indemnification obligations for the Investor.
(b) Liquidity Event. If there is a Liquidity Event before the termination of this Safe, the Investor will automatically be entitled (subject to the liquidation priority set forth in Section 1(d) below and the “MFN” Amendment Provision in Section 3 below) to receive a portion of Proceeds, due and payable to the Investor immediately prior to, or concurrent with, the consummation of such Liquidity Event, equal to the Purchase Amount (the “Cash-Out Amount”). If any of the Company’s securityholders are given a choice as to the form and amount of Proceeds to be received in a Liquidity Event, the Investor will be given the same choice, provided that the Investor may not choose to receive a form of consideration that the Investor would be ineligible to receive as a result of the Investor’s failure to satisfy any requirement or limitation generally applicable to the Company’s securityholders, or under any applicable laws.
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About this template
What is this template?
This document is an investment instrument that provides future equity rights rather than immediate stock or debt. It contains an MFN clause allowing the investor to adopt better terms from later SAFEs but lacks a Valuation Cap or Discount Rate. It is not a convertible note and does not accrue interest or have a maturity date.
When should you use it?
Use this when a startup needs immediate funding and wants to offer investors protection against later, more favorable SAFE terms via the MFN clause. Use the 'SAFE: Valuation Cap, No Discount' version if the parties have already agreed on a maximum conversion price.
What's inside
| Clause | Name | What it does |
|---|---|---|
| 1(a) | Equity Financing | Automatically converts the Purchase Amount into Standard Preferred Stock at the lowest price per share offered during the next financing round. |
| 1(b) | Liquidity Event | Entitles the Investor to a Cash-Out Amount equal to the Purchase Amount immediately prior to a Change of Control or IPO. |
| 1(d) | Liquidation Priority | Ranks the Investor junior to creditors, on par with other SAFE holders, and senior to common stockholders. |
| 3 | MFN Amendment Provision | Obliges the Company to notify the Investor if it issues subsequent convertible securities with more favorable terms like caps or discounts. |
| 5 | Investor Representations | Requires the Investor to confirm they are an accredited investor as defined in Rule 501 of Regulation D. |
| 6(c) | Dividends | Grants the Investor a Dividend Amount if the Company pays a non-stock dividend to common stockholders while the SAFE is outstanding. |
Who it's for
- a US corporation raising early-stage capital without setting a current valuation
- an investor seeking a Most Favored Nations right for future financing terms
- founders using the standard Y Combinator post-money SAFE framework
- startups and investors deferring valuation until a priced equity round
How long it runs and how it's signed
Law it's drafted under
United States note
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