SAFE Side Letters Explained: What to Ask For (and What to Avoid)

You've decided to raise on a SAFE (Simple Agreement for Future Equity). Smart choice—SAFEs are founder-friendly, well-understood by investors, and quick to close. But here's what many first-time founders don't realize: the SAFE itself is just the starting point.

Side letters—separate agreements that modify or add to the standard SAFE terms—are where experienced founders and investors negotiate additional protections. Let's break down what you should know.

What Is a Side Letter?

A side letter is a separate document that accompanies a SAFE and grants the investor (or sometimes the company) additional rights not included in the standard SAFE template. Think of it as a customization layer on top of the standard agreement.

Why use a side letter instead of modifying the SAFE itself? Two reasons:

1. Standardization: Keeping the core SAFE unchanged makes it easier for future investors and lawyers to quickly understand your cap table.
2. Selective application: You might offer certain rights to your lead investor but not to smaller checks.

Common Side Letter Provisions Worth Asking For

1. Pro-Rata Rights

What it is: The right to invest in future financing rounds to maintain your ownership percentage.

Why founders should care: This is primarily an investor protection, but offering it strategically to your best investors builds goodwill and signals you want them involved long-term.

Market standard: Typically offered to investors writing checks of $100K+ or lead investors.

2. Information Rights

What it is: Regular updates on company financials, metrics, and major developments.

Why founders should care: Good investors want to help. Keeping them informed means they can make introductions, provide advice, and support you when things get tough.

Market standard: Quarterly updates are reasonable. Monthly detailed financials is aggressive for SAFE investors.

3. Most Favored Nation (MFN) Clause

What it is: If you offer better terms to a later SAFE investor, earlier investors automatically get those terms too.

Why founders should care: This can be a trap—see our article on The MFN Clause Trap. Be very careful with the scope.

Market standard: MFN is common but should be limited to the same financing round, not future priced rounds.

4. Board Observer Rights

What it is: The right to attend board meetings without voting power.

Why founders should care: This gives investors visibility without control. Can be valuable if the investor is genuinely helpful; annoying if they're not.

Market standard: Reasonable for large SAFE investors ($250K+); unusual for smaller checks.

Provisions to Be Careful With

1. Broad MFN Clauses

An MFN that applies to future priced rounds can cause chaos. If you raise a Series A at a lower valuation cap than your SAFEs, do all SAFE investors get the Series A price? Probably not the intent, but poorly drafted MFN clauses can be ambiguous.

2. Veto Rights

SAFE investors generally shouldn't have veto rights over company decisions. If an investor is asking for this at the SAFE stage, that's a red flag about how they'll behave as a Series A investor.

3. Anti-Dilution at the SAFE Stage

SAFEs don't typically include anti-dilution protection—that's a priced round concept. If an investor is asking for anti-dilution in a side letter, push back hard.

4. Overly Broad Information Rights

Real-time dashboard access, weekly financials, or the right to audit your books is excessive for SAFE investors. Save that for your lead Series A investor.

How to Negotiate Side Letters

1. Lead investors get more. It's reasonable to offer your lead investor (the one setting terms and doing diligence) better side letter terms than smaller follow-on investors.

2. Be consistent within a round. If you give one $50K investor pro-rata rights, you'll likely need to offer it to others at the same level.

3. Document everything. Side letters should be formal, signed documents—not email agreements. Your Series A lawyers will thank you.

4. Keep a cap table note. Track who has what rights. This becomes critical during your priced round.

Template: A Reasonable SAFE Side Letter

Here's what a balanced side letter might include for a $100K+ SAFE investor:

• Pro-rata rights for the next equity financing
• Quarterly investor updates (not financials, just narrative updates)
• MFN limited to SAFEs issued in the same financing

That's it. Keep it simple. You can use our SAFE Generator to create SAFEs with appropriate side letters.

The Bottom Line

Side letters are a normal part of SAFE financings, but they're also where inexperienced founders can accidentally give away rights that hurt them later. When in doubt:

• Keep the core SAFE standard (use the YC template)
• Limit side letter provisions to what's truly necessary
• Be consistent across similar-sized investors
• Get legal review before signing

Remember: Every right you grant in a side letter sets a precedent for future negotiations. Grant them thoughtfully.