Created by Y Combinator in 2013, a SAFE is not a loan: there is no interest, no maturity date, and nothing to repay. The investor's money converts into shares at your next priced round, usually on better terms than that round's investors get, via a valuation cap, a discount, or both. Because it avoids setting a price today, it is fast and cheap — often signed in days rather than the weeks a priced round takes.
For founders the appeal is obvious and the risk is arithmetic. SAFEs are easy to sign one at a time, and their dilution is invisible until they all convert simultaneously. Stack four small SAFEs with different caps and you can find yourself giving away far more of the company at conversion than the sum felt like at the time. Track every SAFE on your cap table as if it had already converted, and model the conversion before signing the next one.
A concrete example: an angel puts in $100,000 on a SAFE with a $4,000,000 valuation cap. Eighteen months later you raise a priced round at an $8,000,000 pre-money valuation. Because of the cap, their $100,000 converts as though the company were worth $4,000,000 — roughly 2.5% of the company, instead of the 1.25% the new investors get for the same money. That is the reward for early risk, and it is dilution you should have seen coming.