A SAFE, created by Y Combinator in 2013, lets early-stage startups raise money without first agreeing on a company valuation — a notoriously hard thing to price accurately pre-revenue. The investor hands over cash now; in exchange, they get the right to convert that investment into equity later, when the company raises a priced round.
Most SAFEs include a valuation cap (a ceiling on the valuation used to calculate the investor's conversion price), a discount (a percentage off the price other investors pay in that future round), or both. The investor converts at whichever term gives them the better, lower price.
Since 2018, Y Combinator's standard SAFE is "post-money" — the valuation cap already accounts for all other SAFEs and the option pool, meaning each SAFE's ownership percentage is fixed and known at signing. Earlier "pre-money" SAFEs could dilute each other in ways that were hard to predict until the priced round actually happened.