A SAFE looks simple: an investor gives you money now, and it turns into shares at your next priced round, at a price set by the valuation cap. The part that catches founders out is the word in front of "cap". A $500k SAFE at an $8M post-money cap and the same SAFE at an $8M pre-money cap give the investor different stakes. And when you stack several SAFEs, the two types put the dilution on different people.
Below is a worked example of both, through a seed round. You can rerun every number with your own terms in the cap table calculator.
How does a SAFE convert into shares?
A SAFE (Simple Agreement for Future Equity) has no share price of its own. At the next priced round it converts into that round's preferred stock at the lower of two prices:
- Cap price: the valuation cap divided by the company's capitalization (the share count).
- Discount price: the round's price per share minus the discount, if the SAFE has one (20% is common).
Shares received = the SAFE amount ÷ the conversion price. A lower price means more shares, so the investor always gets whichever term is better for them.
The difference between post-money and pre-money SAFEs is which share count the cap is divided by.
Post-money SAFE: the cap includes all SAFE money
Y Combinator switched its standard SAFE to post-money in 2018, and it's now the default for most pre-seed deals. With a post-money SAFE, the cap is the company's value after all SAFEs convert, so the investor's stake is fixed:
Ownership = SAFE amount ÷ post-money cap
$500k at an $8M post-money cap is exactly 6.25% of the company before the priced round, however many other SAFEs you sign.
Pre-money SAFE: the cap excludes SAFE money
With a pre-money SAFE (the original YC SAFE, still used in some deals and by many convertible notes), the cap is divided by the shares outstanding before any SAFEs convert. The cap price is fixed, but the investor's percentage isn't, because every other SAFE adds shares too.
$500k at an $8M pre-money cap is worth roughly what a $500k SAFE at an $8.5M post-money cap would be, and that's before any other SAFEs.
Worked example: two SAFEs at an $8M cap
The company has 9,000,000 founder shares and a 1,000,000-share option pool (10,000,000 in total). It raises two SAFEs of $500k each, both with an $8M cap and no discount.
| Post-money SAFEs | Pre-money SAFEs | |
|---|---|---|
| Conversion price | $0.70 | $0.80 |
| Shares per SAFE | 714,286 | 625,000 |
| Each SAFE owns | 6.25% | 5.56% |
| Founders own | 78.75% | 80.00% |
The pre-money price is simple: $8M ÷ 10,000,000 shares = $0.80. The post-money price is lower because the cap is divided by a share count that includes the SAFE shares: $8M ÷ 11,428,571 = $0.70. The same $1M costs the founders 1.25 percentage points more.
Why each new post-money SAFE dilutes only the founders
Now the company signs a third identical SAFE.
| Post-money SAFEs | Pre-money SAFEs | |
|---|---|---|
| Each SAFE owns | 6.25% (unchanged) | 5.26% (down from 5.56%) |
| Founders own | 73.13% (−5.62 pts) | 75.79% (−4.21 pts) |
With post-money SAFEs, the first two investors still own exactly 6.25% each, so all of the new SAFE's 6.25% comes out of the founders and the option pool. With pre-money SAFEs, every SAFE holder takes part of the hit.
That's the trade-off in one line: post-money SAFEs give investors certainty and give founders all of the dilution from later SAFEs. It isn't a reason to refuse them. They're standard, and the certainty makes them easier to negotiate. But it means you should add up all your SAFEs before you sign the next one: three $500k SAFEs at an $8M post-money cap is 18.75% of the company gone before your seed round.
What happens at the seed round
Next the company raises a $3M seed at a $12M pre-money valuation, and the lead asks for a 10% option pool after the round, counted in the pre-money. With the original two SAFEs:
| After the seed | Post-money SAFEs | Pre-money SAFEs |
|---|---|---|
| Seed price per share | $1.007 | $1.024 |
| SAFE holders (both) | 9.59% | 8.54% |
| Seed lead | 20.00% | 20.00% |
| Option pool | 10.00% | 10.00% |
| Founders | 60.41% | 61.46% |
Two things to notice:
- The seed investor gets exactly 20% either way, because $3M ÷ $15M post-money = 20%. The SAFE type changes how the remaining 80% is split, not the new investor's stake.
- The SAFEs convert at $0.70 or $0.80, well below the seed price of about $1. That gap is the SAFE investors' reward for coming in early, and it's the cap doing its job.
The option pool shuffle makes it worse
In the example the founders started with 90% of the company and finished the seed round with about 60%, but the SAFEs and the seed money explain only part of that. The rest is the option pool shuffle: the pool is topped up to 10% of the post-round company, and the new options are counted in the $12M pre-money. That lowers the price per share, so existing holders absorb all of the pool's dilution while the new investor's 20% stays untouched.
In the post-money case the pool grows by about 490,000 shares. If the same top-up came after the round, so that it diluted the seed investor too, the founders would keep more. It's a negotiating point, so model both before you sign the term sheet. The calculator has a switch for this on every priced round.
A checklist before you sign a SAFE
- Check which type it is. The YC post-money SAFE says "post-money" in its title. If yours doesn't, read the definition of "Company Capitalization".
- Add up every SAFE. For post-money SAFEs, the total ownership sold is the sum of amount ÷ cap across all of them.
- Model the priced round, including the option pool the seed lead is likely to ask for.
- Look at the exit, not just the percentages. SAFEs convert into preferred stock with a liquidation preference, which matters in a modest sale.
The cap table calculator does all four: enter your SAFEs and notes, add the seed round with its pool target, and switch to the exit waterfall to see what everyone takes home. It runs in your browser, so your cap table isn't uploaded anywhere.