A safe note is a way to structure early investment rounds at the angel and seed stage before a properly priced equity round. It is an alternative to "convertible notes". YCombinator partner and lawyer Carolyn Levy invented this new financial instrument in 2013 to improve upon the convertible note.
Here is the definition of the safe note according to YCombinator.
"A safe is like a convertible note in that the investor buys not stock itself but the right to buy stock in an equity round when it occurs. A safe can have a valuation cap, or be uncapped, just like a note. But what the investor buys is not debt, but something more like a warrant. So there is no need to fix a term or decide on an interest rate."
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This article builds on content developed by the Martin Trust Center for MIT Entrepreneurship for MIT's Orbit Knowledgebase and is licensed under CC BY-NC-SA 4.0.