SAFE vs BSA Air: The Definitive Guide for Entrepreneurs and Investors
Everyone in the startup ecosystem has heard of Y Combinator's SAFE and the French BSA Air. Many talk about them, but too many still get burned. Here's the comprehensive guide to understanding these early-stage financing instruments that could save your cap table.
1. The Fundamentals: Why These Instruments Exist
Early-stage startup financing has always presented a major challenge: how do you invest in a company that's too young to be properly valued? Historically, two approaches dominated:
Equity round: Complete valuation, heavy legal documentation, complex negotiations
Convertible notes: Convertible loans with maturity dates and interest, creating debt on the balance sheet
Both mechanisms presented significant drawbacks for nascent companies. It's in this context that SAFE and BSA Air were born.
2. The SAFE Dissected: Mechanisms and Evolutions
2.1 Anatomy of a SAFE (Simple Agreement for Future Equity)
Created by Y Combinator in 2013, the SAFE is a convertible investment contract that is neither debt nor equity. Its fundamental characteristics:
No maturity date: Unlike convertible notes, no conversion deadline
No interest: The investor doesn't accumulate interest on their investment
Automatic conversion: Upon a qualified equity round (typically defined by a minimum amount)
The key terms negotiated in a SAFE are:
Valuation cap: Maximum valuation ceiling for conversion
Discount: Reduction applied relative to new investors (typically 10-25%)
MFN clause (Most Favored Nation): Guarantee to obtain the best future terms
2.2 The Critical Evolution: Pre-Money vs Post-Money SAFE
In 2018, Y Combinator introduced a major modification that changed the game: the Post-Money SAFE.
Pre-Money SAFE (original):
Cap is defined as a pre-money valuation
Dilution related to the SAFE itself and other SAFEs isn't calculated in advance
Calculation formula:
Shares = Investment amount / (Pre-money valuation / Existing shares)Post-Money SAFE (2018+):
Cap is defined as a post-money valuation
Dilution is clearly defined from the start
Calculation formula:
Shares = (Investment amount / Cap) × Total shares after dilutionThis transition seemed to bring more clarity, but it introduced a hidden complexity: the cumulative effect of consecutive SAFEs.
2.3 The Case Study: The Cumulative Effect of Post-Money SAFEs
Let's take a concrete example to illustrate this often-ignored issue:
You're the CEO and hold 1,000,000 shares. You raise three consecutive SAFEs:
At first glance, these SAFEs seem equivalent: each represents a 10% dilution regardless of the calculation method.
But here's where the devil hides in the details:
Scenario 1 - All your SAFEs are Pre-Money cap:
For each SAFE, you calculate an ownership percentage of 10%, or 111,111 new shares per SAFE.
New shares = (Existing shares / (1 - Dilution)) - Existing shares
New shares = (1,000,000 / 0.9) - 1,000,000 = 111,111Total after three SAFEs: 333,333 new shares Your final ownership: 1,000,000 / 1,333,333 = 75%
Scenario 2 - All your SAFEs are post-Money cap:
Each SAFE creates a 10% dilution, but on a cumulative basis:
First SAFE: 10% = 111,111 new shares
Second SAFE: 10% of (1,000,000 + 111,111) = 123,457 new shares
Third SAFE: 10% of (1,000,000 + 111,111 + 123,457) = 137,174 new sharesTotal after three SAFEs: 371,742 new shares Your final ownership: 1,000,000 / 1,371,742 = 72.9%
The difference intensifies with the amount raised and the number of SAFEs. In a more extreme scenario, with SAFEs at different conditions, the impact can be far more dramatic.
After an additional equity round of $8M at $40M post-money (20% dilution), your ownership would go to:
Pre-Money Scenario: 75% × 0.8 = 60%
Post-Money Scenario: 72.9% × 0.8 = 58.3%
To precisely simulate these effects, Carta offers a free tool
3. The BSA Air: The French Alternative Explained
3.1 What is a BSA Air?
The BSA Air (Bon de Souscription d'Actions) is the French adaptation designed to address the same needs as the SAFE, but within the French legal framework. Unlike the SAFE, the BSA Air is a security governed by the French Commercial Code.
Fundamental structure:
Warrant: Gives the right to purchase shares at a predetermined price
Subscription price: Generally symbolic (€1)
Exercise price: Actual amount invested, paid upon conversion
Exercise conditions: Events triggering conversion (fundraising, sale...)
Validity period: Unlike the SAFE, the BSA has a limited duration (typically 5-10 years)
3.2 Tax Benefits: The BSA Air's Major Asset
The main advantage of the BSA Air for French investors lies in its optimized tax treatment:
IR-PME tax reduction: Investments via BSA Air may be eligible for income tax reduction for SME investment (18% of the amount invested, capped)
Capital gains tax regime: Advantageous tax treatment when selling the shares obtained
Flat tax: Application of the 30% flat tax on capital gains
To be eligible for these benefits, the structuring must be precise and comply with the conditions set by the tax authorities.
4. Detailed Comparative Analysis: SAFE vs BSA Air
4.1 Legal Framework and Recognition
4.2 Process and Costs
4.3 Flexibility and Structure
4.4 Tax and Accounting Implications
5. Practical Guide: When and How to Use Each Instrument
5.1 Optimal Scenarios for SAFE
The SAFE is particularly suitable in the following contexts:
Ideal company profile:
Startups with immediate international ambitions
Business models requiring rapid iterations and potential pivots
Rapid funding cycles before Series A
B2C or deep tech companies with uncertain revenue models
Ideal investor profile:
International angels and VCs
Investors familiar with the American startup ecosystem
Seed funds with international experience
Optimal structure:
Reasonable cap (generally 4-8× the amount invested)
Moderate discount (15-20%)
Well-formulated MFN clause
Bilingual documentation
5.2 Optimal Scenarios for BSA Air
The BSA Air is particularly relevant in the following situations:
Ideal company profile:
French startups without immediate international ambitions
Relatively predictable business models
Companies with tangible assets or established intellectual property
B2B companies with identifiable commercial pipeline
Ideal investor profile:
Tax-sensitive French business angels
French family offices and corporate ventures
French institutional investors
Optimal structure:
Symbolic subscription price (€1)
Exercise price corresponding to the investment
Well-defined exercise conditions
Balanced anti-dilution protection
5.3 The Hybrid Strategy: The Best of Both Worlds
In many cases, a hybrid approach can offer maximum flexibility:
Strategy 1: Segregation by investor type
SAFE for international investors
BSA Air for French investors
Strategy 2: Mirror documentation
Creation of equivalent documents in both formats
Identical economic terms with adapted legal structures
Systematic bilingual documentation
Strategy 3: Coordinated early conversion
Upstream planning for conversion of both types of instruments
Alignment of conversion conditions
Unified preferred share structure
6. Critical Errors to Avoid and Solutions
6.1 SAFE Pitfalls
Error #1: SAFE without cap
Problem: Potentially unlimited dilution
Solution: Always insist on a reasonable cap
Error #2: Multiplication of Post-Money SAFEs without modeling
Problem: Underestimated cumulative dilution effect
Solution: Precisely model each scenario with specialized tools
Error #3: SAFEs with different terms without hierarchization
Problem: Potential conflicts during conversion
Solution: Clearly structure conversion priority
Error #4: Incomplete documentation for conversion
Problem: Disputes over interpretation during the next round
Solution: Precisely define conversion mechanisms, including for alternative scenarios
6.2 BSA Air Pitfalls
Error #1: Non-compliant structure for tax advantage
Problem: Loss of expected tax benefits
Solution: Validation by a specialized tax expert
Error #2: Inappropriate validity period
Problem: Premature expiration before conversion
Solution: Calibrate duration according to business plan (minimum 5-7 years)
Error #3: Overly restrictive exercise conditions
Problem: Impossible conversion in certain scenarios
Solution: Provide alternative exercise clauses
Error #4: Non-anticipation of international constraints
Problem: Incompatibility with future investors
Solution: Provide mechanisms for conversion into standard international instruments
7. Practical Checklist and Resources
7.1 Checklist for Founders
Before signing a SAFE:
✅ Model the dilutive impact on your cap table (pre and post-conversion)
✅ Analyze the cumulative effect of all existing and planned SAFEs
✅ Check compatibility with your jurisdiction and corporate structure
✅ Prepare advance conversion documentation
✅ Anticipate questions from future institutional investors
Before signing a BSA Air:
✅ Verify that your company's bylaws allow for issuance
✅ Consult an expert on tax and accounting implications
✅ Prepare the complete timeline for legal procedures
✅ Anticipate anti-dilution protection mechanisms
✅ Plan for alternative exercise scenarios
7.2 Checklist for Investors
Before investing via SAFE:
✅ Calculate your ownership percentage in different fundraising scenarios
✅ Check other SAFEs already issued and their conditions
✅ Analyze protection mechanisms in case of liquidity or down-round
✅ Understand potential limitations on your governance rights
✅ Plan your strategy for future rounds
Before investing via BSA Air:
✅ Check your eligibility for tax benefits (especially IR-PME)
✅ Analyze the issuance contract in detail, particularly exercise conditions
✅ Understand adjustment and anti-dilution mechanisms
✅ Check validity period in relation to the business plan
✅ Plan exit scenarios and potential liquidity
7.3 Essential Resources
For SAFE:
For BSA Air:
Conclusion: Beyond the Instruments
Technical complexity shouldn't obscure the essential: these instruments are merely vehicles serving a founder-investor relationship that extends over time.
The choice between SAFE and BSA Air, or their clever combination, should reflect:
The company's strategic vision
Compatibility with current and future investors
Balance between execution simplicity and legal protection
Tax and accounting optimization according to relevant jurisdictions
In the end, transparency and alignment of interests remain the most determining factors for successful early-stage financing.
As the sector adage aptly reminds us: "STAY SAFE ;-)" - but above all, stay informed and aware of the implications of each of your financing decisions.
If this article was useful to you, share it with a founder or investor who might need it. And if you want to discuss your particular case, don't hesitate to contact me directly.
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