SAFE Agreements: Comparative Analysis between the US, England & Wales and Bulgaria

Corporate Client Insights, Venture Capital, Startups

Since its introduction by Y Combinator in the US in 2013, the Simple Agreement for Future Equity (SAFE) has become one of the most innovative tools in startup financing. Created to simplify seed-stage fundraising, the SAFE allows companies to raise capital quickly by deferring the valuation discussion until a later priced equity round, typically a Series A. As adoption grows, it is increasingly important for entrepreneurs, investors, and legal practitioners to understand how SAFEs operate across different jurisdictions and how they compare to traditional investment vehicles.

SAFE Agreements vs Convertible Notes

Both SAFEs and convertible notes serve early-stage financing needs, but they differ fundamentally in legal structure and risk allocation.

• SAFEs are equity-linked arrangements, not debt instruments. They do not accrue interest, carry no maturity date, and place no repayment burden on founders. This makes them less complex to document and more founder-friendly.
• Convertible notes, by contrast, are debt instruments. They accumulate interest, specify maturity dates, and often include repayment obligations. While this provides stronger enforcement mechanisms and protection for investors, it can create additional burdens for startups with limited resources.

As a result, SAFEs are attractive for their simplicity and low transaction costs, whereas convertible notes may appeal to investors seeking more structured legal remedies through debt characteristics.

SAFEs vs Advance Subscription Agreements (ASAs) in England & Wales

Unlike in the US, the legal system in England and Wales does not recognise an identical structure to the US SAFE. Instead, Advance Subscription Agreements (ASAs) are often preferred in the UK market.

• SAFEs have been introduced in the UK as adaptations of their American form, but require significant modification to comply with domestic company law and regulatory expectations.
• Tax treatment in the UK remains unclear. HMRC has not issued definitive guidance on SAFEs, creating uncertainty over whether they should be treated as debt, potentially resulting in deemed interest charges, benefit-in-kind assessments, or other corporation tax implications.
• By contrast, ASAs are widely accepted and better aligned with UK legal and tax frameworks. They offer clearer paths for SEIS and EIS qualification, set defined conversion timeframes, and enjoy greater predictability of HMRC treatment.

For these reasons, many UK investors and startups opt for ASAs, though SAFEs are still used in certain situations.

Benefits and Challenges

SAFE agreements offer distinct advantages within startup ecosystems:

• Streamlined execution – Simple documentation allows transactions to complete quickly and with lower legal expenses.
• No debt burden – Absence of interest accrual and repayment obligations enables startups to maintain cash flow flexibility.
• Investor safeguards – Valuation caps and discounts protect early investors against later dilution.
• Contractual flexibility – SAFE terms can be adapted to the specific funding needs of startups and requirements of investors.

At the same time, SAFEs carry inherent challenges:

• Uncertainty of equity ownership – Exact investor percentages remain undefined until conversion at a priced round.
• Dilution risks – Multiple SAFEs issued before a priced financing can significantly reduce early investors’ ultimate stake.
• No maturity date – If a company never raises a qualifying round, SAFEs may never convert, leaving investors without actual equity.
• Administrative complexity – Managing several SAFEs with varying caps and discounts may complicate conversions during institutional fundraising.

SAFEs and Alternatives in Bulgaria

The Bulgarian legal system does not currently provide explicit statutory provisions for SAFE agreements. Nevertheless, developments in local legislation are gradually improving the landscape for early-stage fundraising.

• In 2024, Bulgaria introduced the Variable Capital Company (VCC) through amendments to the Commercial Act. The VCC framework is designed to facilitate startup fundraising and accommodate incentive models such as convertible debt and employee option structures. This represents a step toward greater flexibility, though SAFEs themselves are not directly codified.
• In practice, SAFEs in Bulgaria would likely be treated under general contract law, pursuant to the Obligations and Contracts Act. While contracts are legally binding, interpretative challenges arise because SAFEs do not fit neatly into traditional categories such as debt or direct equity.
• Points in favour of classifying SAFEs as non-debt include: no interest charged, no maturity date, no repayment obligation, and the presence of equity conversion rights. However, uncertainty remains, as neither courts nor tax authorities have provided precedent or interpretive guidance.

This lack of specific legislation means that Bulgarian SAFEs carry both opportunity and risk. They can provide flexible fundraising instruments, but investors and startups must anticipate potential regulatory scrutiny and interpretative ambiguity when structuring them.

Strategic Considerations

While SAFE agreements reduce costs and accelerate fundraising, they are not a universal solution. Their suitability depends on factors such as:

• the company’s stage of development,
• funding requirements and availability of institutional interest,
• investor appetite for protection mechanisms, and
• long-term governance preferences.

As the global venture capital ecosystem evolves, startups and investors must carefully weigh the benefits of SAFEs against conventional alternatives such as convertible notes in the US, ASAs in the UK, or equity participation through newer structures like the Bulgarian Variable Capital Company.

At New Balkans Law Office (NBLO), we advise both investors and startups on the most suitable structures for early-stage financing in the UK, EU, and Bulgaria. Our team assists clients in navigating the legal and tax complexities of SAFE agreements, ASAs, and other fundraising mechanisms, ensuring that each arrangement is structured to protect investor interests while fostering long-term company growth.

We provide pragmatic, sector-focused legal guidance to ensure clients can pursue opportunities confidently in fast-moving startup ecosystems.

For tailored advice on structuring SAFE agreements or alternative investment instruments, please contact us at sofia@newbalkanslawoffice.com.