In brief, a safe is a security instrument that represents a promise by a company to issue preferred equity to its investors in the event the company is able to close a future round of preferred equity financing.  Unlike a convertible note, there is no cash repayment feature, so safes are not technically debt instruments.  Rather, investors are guaranteed equity “ preferred units or stock on the same terms as the next round.  A somewhat close analog to a safe is a warrant.

Convertible notes are still popular because they allow entrepreneurs to raise money quickly and œkick the can down the road with respect to pinning down the finer points of what investors get for their money (e.g., the valuation of the company, and thus the price per unit/share).  Safes purport to be even more convenient, in that they allow companies to avoid having to set a term, interest rate or other feature of a debt instrument like a convertible note.

Y Combinator is certainly on the cutting edge of startup financing, but it remains to be seen whether companies and their early-stage investors will take a shine to the safe model.  Convertible notes have lost, and are continuing to lose, some of their appeal in favor of a return to straight equity sales, especially in smaller-money investments.  Whether safes become the vehicle de rigueur is uncertain, but it’s probably a safe bet that¦.nevermind.