Is there an Israeli version of the YC SAFE?

Y Combinator publishes templates for US, Canadian, Cayman and Singapore companies only. Israeli companies use a SAFE adapted to Israeli law by their lawyers, usually specifying the share class, a minimum round for conversion and a long-stop date.

How is a SAFE taxed in Israel?

Under Israel Tax Authority guidance dated 29 January 2025, a SAFE that meets its conditions is treated as an advance payment for shares, so conversion is not a tax event. The guidance covers SAFEs signed between 1 January 2025 and 31 December 2026.

What is a typical SAFE cap in Israel?

Fusion's 2026 survey reported a median pre-seed SAFE valuation cap of about $6.8M and an average of about $7.25M for 2025.

Do Israeli SAFEs include a discount?

Often. Israeli practitioners describe 20% as a typical discount when one is used, alongside a valuation cap. The investor converts at whichever gives the lower price.

How much dilution do SAFEs cause?

Each post-money SAFE gives the investor its amount divided by the cap. Stacking several SAFEs and then raising a priced round with an option pool increase can dilute founders by half or more, as Y Combinator's worked example shows.

What Is a SAFE and How Does It Work in Israel? (2026 Guide), Velo Labs

The short answer: a SAFE (Simple Agreement for Future Equity) is an investment today in exchange for shares later, usually at the next priced round, at a price set by a valuation cap and sometimes a discount. Most Israeli pre-seed rounds now use the post-money SAFE: 64% of Israeli pre-seed VCs invest exclusively through it. Israeli companies adapt the US template to Israeli law, and the Israel Tax Authority has published guidance under which a SAFE that meets its conditions is taxed as an advance payment for shares. That guidance covers SAFEs signed in 2025 and 2026.

This guide explains how SAFEs work. It is general information, and every SAFE should be reviewed by a startup lawyer and, where relevant, a tax advisor.

How a post-money SAFE works

Y Combinator introduced the post-money SAFE in 2018. Its core idea is simple: the investor's ownership is fixed when the SAFE is signed.

Ownership at conversion = investment amount ÷ post-money valuation cap. A $500K SAFE at a $10M post-money cap converts into 5% of the company, measured after all SAFEs and before the new money in the priced round.

Term	What it means
Valuation cap	The maximum valuation at which the SAFE converts. If the priced round is at a higher valuation, the SAFE converts at the cap.
Discount	A reduction on the next round's price (Israeli practitioners describe 20% as typical when one is used). The investor gets the better of cap or discount.
MFN	Most-favoured-nation: if you later issue a SAFE on better terms, this investor can adopt them.
Pro-rata side letter	A right to invest more in the round where the SAFE converts.
Conversion	Usually at the next priced equity round; also addressed on a sale or liquidation.

What changes for an Israeli company

Y Combinator publishes SAFE templates for US, Canadian, Cayman and Singapore companies, and none for Israel. Israeli companies use a SAFE adapted to Israeli law. Points Israeli lawyers commonly add:

Which shares it converts into.The next round may issue ordinary shares, "Seed" shares or preferred shares. Israeli law gives preferred rights only through the articles of association, so the SAFE should say which class it converts into.
A minimum round size for conversion.So that a small bridge does not trigger conversion.
A long-stop date.What happens if no priced round occurs.
Basic rights at conversion.Pre-emptive rights, right of first refusal or tag-along can be set in a few lines. Board seats and vetoes are not typical for SAFE investors.
Corporate approvals.Issuing shares at conversion needs board approval and often shareholder approval, for example to create a new share class or increase registered capital, and the allotment is reported to the Registrar of Companies.

How the Israel Tax Authority treats SAFEs

The key tax question is whether a SAFE is equity or debt. If it is treated as debt, the discount can be taxed as interest and the company may have to withhold tax at conversion. To give certainty, the Israel Tax Authority published guidance (latest version dated 29 January 2025) under which a qualifying SAFE is treated as an advance payment for shares: conversion is not a tax event, and a later sale is taxed as a sale of shares.

The main conditions, in brief:

The company.An Israeli-resident private technology company that has mostly spent on R&D and is doing R&D when the SAFE is signed, with no priced round in the three months before the SAFE closes.
The instrument.Up to USD 20M per investor; not labelled a loan; no interest or yield; no liens or guarantees; up to three discount tiers, reaching the maximum discount within three years.
Conversion.Mandatory at the earliest of a large round, an IPO, an exit, a sale of most assets, or a fixed date in the SAFE; at least 25% of the converting round from new investors.
Holding period.The investor holds the shares at least 12 months from signing or 9 months from conversion, except on an exit or liquidation.

A SAFE outside these conditions is not automatically debt; it is reviewed on its own facts. The guidance applies to SAFEs signed from 1 January 2025 to 31 December 2026, so check for an update before signing a SAFE in 2027.

The stacking problem, with numbers

Because each post-money SAFE fixes the investor's percentage, every SAFE you add dilutes the founders, and the effect only becomes visible at conversion. Y Combinator's own example:

Step	Ownership
Investor A: $200K at a $4M post-money cap	5%
Investor B: $800K at an $8M post-money cap	10%
Total sold on SAFEs before the priced round	15%
After a $5M Series A at a $15M pre-money, with B taking pro-rata	A about 3.3%, B about 9.1%

In YC's illustration, with 15% sold on SAFEs, 25% to new Series A investors and an 8% option pool increase, the founders' combined dilution reaches about 53%. YC also notes that raising more than the post-money cap on SAFEs would mathematically leave founders with negative ownership. The practical rules:

Keep a live cap table that shows every SAFE converted at its cap.
Model the next round before signing another SAFE, including the option pool investors will ask for.
Watch MFN clauses when you issue a later SAFE at a lower cap.
Do not mix pre-money and post-money SAFEs in the same round.

SAFE, convertible loan or priced round?

A SAFE is fast and cheap, which is why it dominates Israeli pre-seed. A priced round sets the valuation, creates a share class and gives investors defined rights; it costs more in legal work and is more common from seed onwards. Convertible loans are still used, and carry the debt-classification questions the tax guidance was written to address. The right choice depends on the round size, the investors and what the next round will look like.

What is a SAFE and how does it work in Israel? (2026 guide)