SAFE Notes in the Netherlands: Do They Really Work?

How US-style SAFE instruments should be adapted for Dutch startup financing

SAFE notes are widely used in US startup financing. They are designed to be simple: an investor provides funding now and receives the right to convert into equity in a future financing round, usually with a valuation cap, discount or both.

For a Dutch BV, the commercial idea can work. But a US-style SAFE should not be copied into Dutch documentation without adjustment. The issue is not whether founders and investors can agree on a simple future-equity instrument. The issue is whether conversion into shares can actually be implemented under Dutch corporate law.

In a Dutch BV, shares do not automatically appear because a contract says they should. Share issuances usually require corporate approvals, attention to pre-emption rights, alignment with the articles of association and a Dutch notarial deed. A Dutch SAFE-style instrument must therefore connect the commercial conversion right to the legal steps required to issue or transfer shares.

For broader context, see Dutch Venture Capital Insights, Raising Venture Capital in a Dutch BV, Convertible Loans in the Netherlands and MFN Clauses in Convertible Loans and SAFE-Like Instruments.

What is a SAFE?

A SAFE, or Simple Agreement for Future Equity, is a contractual investment instrument. The investor provides capital now and receives a right to obtain shares later, usually when the company completes a qualified equity financing.

Unlike a traditional convertible loan, a SAFE is often not structured as debt. It may have no interest, no fixed maturity date and no classic repayment obligation. That is why founders often like SAFEs: they can postpone valuation, avoid immediate debt pressure and raise money with less documentation than a full priced equity round.

For investors, the attraction is early exposure to the company, usually with economic protection through a valuation cap, discount or both. The investor accepts early risk and expects to convert on better terms than later investors.

That commercial bargain must be translated into a mechanism that works for a Dutch BV.

Dutch BV implementation

In a Dutch BV, new shares are generally issued through a notarial deed. Existing shareholders may have pre-emption rights unless waived or excluded. The articles of association may need to permit the relevant class of shares and the agreed economic rights.

This means that a SAFE cannot automatically “become shares” without the necessary Dutch corporate actions. The conversion mechanics must be supported by shareholder resolutions, notarial execution and, where relevant, amendments to the articles.

If this is not properly documented, the investor may have a contractual claim but no automatic shareholding.

The main Dutch implementation issue

Before conversion, a SAFE investor is usually not a shareholder. The investor normally has a contractual claim against the company, not voting rights, dividend rights, meeting rights or a place in the shareholder register.

That is the central legal point. A Dutch SAFE-style instrument should not create the impression that the investor automatically becomes a shareholder at the next round. At conversion, the company still needs to complete the correct Dutch corporate steps.

Those steps may include board and shareholder approvals, waiver or exclusion of pre-emption rights, amendment of the articles of association, creation of a relevant share class, notarial execution and update of the shareholder register.

If those steps are not properly addressed, the investor may have a contractual right to conversion but no automatic shareholding.

Conversion mechanics: valuation cap, discount and share class

The most important economic terms in a SAFE are usually the valuation cap and the discount.

A discount gives the SAFE investor the right to convert at a lower price than the new investors in the next financing round. A valuation cap sets a maximum valuation for the conversion. If the next round valuation is higher than the cap, the SAFE investor benefits from the lower capped valuation.

In Dutch documentation, these concepts must be converted into a clear formula. The agreement should state how the conversion price is calculated, whether the calculation is made on a fully diluted basis, how the option pool is treated, how other SAFEs or convertible loans interact, and which class of shares the investor receives.

This is where many simple documents become less simple. A vague cap table model can create problems in the next financing round, especially where several SAFEs, convertible loans, options, warrants or side letters exist side by side.

For related cap table issues, see Cap Table Adjustments in Dutch Startups and Scale-Ups.

What happens if there is no next round?

A SAFE often assumes that a future priced round will occur. But that may not happen.

For a Dutch startup, the document should address what happens if there is no qualified financing within a certain period. Does the SAFE remain outstanding indefinitely? Does the investor receive repayment rights? Is there a long-stop date? Can the investor convert on another basis? What happens on an exit, asset sale, insolvency, dissolution or restructuring before conversion?

Founders often prefer to avoid maturity dates and repayment obligations. Investors often want a fallback if the next round does not occur. That is the commercial tension.

A Dutch SAFE-style instrument should make this tension explicit. Without fallback provisions, the investor may be left with an uncertain contractual claim and no clear route to shares or repayment.

SAFE versus convertible loan

In the Netherlands, convertible loans are often used as a more familiar alternative.

A convertible loan can include interest, maturity, repayment rights, events of default, mandatory or optional conversion, valuation cap, discount and information rights. It is less simple than a SAFE, but often more predictable if the next financing round does not occur.

That does not mean a SAFE-style instrument cannot work. It means the parties should choose deliberately.

A SAFE may be suitable when the investment amount is modest, the next priced round is expected soon and the parties want to avoid debt-like features. A convertible loan may be more suitable where investors want maturity, interest, default protection or a clearer fallback if conversion does not happen.

The choice should be based on the company’s stage, runway, expected financing timeline, investor position and cap table impact.

SAFE versus priced equity round

Another alternative is to complete a small priced equity round immediately.

That gives the investor shares from the start. It creates more legal work at closing, including corporate approvals, investment documentation, shareholder arrangements and notarial share issuance. But it also avoids uncertainty about future conversion.

A SAFE or convertible instrument may feel faster at signing. But if several instruments accumulate before a priced round, the later conversion may become harder than a simple equity round would have been.

The practical question is therefore not only which instrument is fastest today. The better question is which instrument leaves the company ready for the next round.

Key drafting points for a Dutch SAFE-style instrument

A Dutch SAFE-style instrument should address at least the following points.

It should define the qualified financing that triggers conversion. It should specify the valuation cap, discount, conversion formula, type of shares and treatment of other instruments. It should state which corporate approvals are needed and which parties must cooperate with conversion.

It should also address pre-emption rights, amendment of articles, notarial execution, shareholder register updates, information rights before conversion and any investor protections before the investor becomes a shareholder.

Finally, it should include fallback rules for exit, asset sale, insolvency, dissolution, restructuring or long-term absence of a priced round.

A SAFE should be simple for commercial use, but not silent on the issues that decide whether it can actually convert.

Practical conclusion

SAFE notes can be used in Dutch startup financing, but they need Dutch-law adaptation.

For founders, a SAFE can be attractive because it can postpone valuation and avoid the burden of a full priced round. But too many unclear SAFE-style instruments can complicate the cap table and create issues in the next financing round.

For investors, the key issue is not only the valuation cap or discount. It is whether conversion is legally enforceable and practically executable in a Dutch BV.

In many cases, a properly drafted convertible loan or small equity round may be more robust than an imported US-style SAFE. Where a SAFE-style instrument is used, the conversion mechanics, fallback scenarios and Dutch corporate implementation should be clear from the start.

FAQ

Can a SAFE be used for a Dutch BV?
Yes, but it should be adapted to Dutch corporate law. The instrument should clearly connect the contractual conversion right to the corporate approvals, notarial execution and share issuance mechanics required in a Dutch BV.

Is a SAFE investor a shareholder before conversion?
Usually not. Before conversion, the investor normally has a contractual claim, not shareholder rights such as voting rights, dividend rights or meeting rights.

Does conversion into Dutch BV shares require a notary?
Usually yes. The issue or transfer of Dutch BV shares generally requires a Dutch notarial deed.

Is a SAFE better than a convertible loan?
Not always. A SAFE may be simpler, but a convertible loan can provide clearer rules on maturity, interest, repayment, default and fallback scenarios if the next financing round does not occur.

What is the biggest risk of using several SAFEs?
The cap table may become unclear. Multiple caps, discounts and conversion triggers can create unexpected dilution and delay the next priced round.

About Dirk de Waard

Dirk de Waard is a Dutch corporate, M&A and venture capital lawyer and partner at Venture Lawyers in Amsterdam. He advises founders, startups, scale-ups, angel investors and venture capital funds on Dutch startup financing, SAFE-style instruments, convertible loans, investment rounds, cap table structuring and Dutch BV implementation.

ViottaLaw is Dirk’s personal insights platform. Legal services are provided through Venture Lawyers.

Need to structure a SAFE or convertible instrument for a Dutch BV?

A SAFE-style instrument can be useful, but it should not create uncertainty at the next financing round. Conversion mechanics, valuation caps, discounts, investor rights, fallback scenarios and Dutch notarial implementation should be clear before signing.

Dirk de Waard advises founders and investors on SAFE notes, convertible loans and Dutch startup financing. Contact Dirk at dirk.dewaard@viottalaw.com to review or structure a SAFE-style instrument for a Dutch BV.