A Simple Agreement for Future Equity — usually shortened to SAFE — is the contract Y Combinator introduced in 2013 to replace convertible notes for early-stage rounds. An investor wires money; in return they get the right to convert into equity at a later priced round, typically at a valuation cap, a discount, or both. There’s no interest, no maturity date, no monthly debt to service.
If you’re raising a pre-seed or seed round, a SAFE is almost certainly the instrument you’ll use. The questions that actually matter — and that this page answers — are: pre-money or post-money SAFE, what cap to set, how multiple SAFEs stack at conversion, and what happens if the next round never comes.
Where SAFEs came from
Y Combinator published the SAFE in 2013 as an open-source replacement for convertible notes, which carried interest, maturity dates, and the recurring awkwardness of asking founders to extend or repay. By the late 2010s SAFEs had become the default seed-stage instrument in the US. YC updated the template in late 2018, switching from pre-money to post-money mechanics — the most consequential structural detail on any modern SAFE.
How a SAFE actually works
An investor wires capital — usually $25,000 to $2,000,000 at the seed stage — and receives a signed SAFE documenting their right to convert at a future event. The SAFE sits on the cap table as a future obligation but carries no voting rights, no board seat, and no liquidation preference until conversion.
Conversion happens automatically at the next qualifying event:
- Priced equity round (the standard trigger). When the company raises a priced round meeting the minimum threshold — usually $1M+ — the SAFE converts into the same share class issued to new investors, normally Series A Preferred. Conversion happens immediately before the new money closes.
- Liquidity event (acquisition or IPO). The investor typically chooses between converting to common at the valuation cap or taking back their original investment in cash. Some variants pay 2× the original investment.
- Dissolution. SAFE holders rank behind debt and trade creditors and usually receive nothing if the company shuts down.
The conversion math is always the same shape: shares received = investment ÷ conversion price, where the conversion price comes from whichever term — cap or discount — is more favorable to the investor.
Post-money vs pre-money: the only structural choice that matters
This is the single most important decision on a modern SAFE.
Pre-money SAFE (the original 2013 form) — the cap describes the company’s value before SAFE money goes in. Founders absorb dilution from this SAFE and every other SAFE converting at the same time. Post-conversion ownership is hard to predict because each new SAFE dilutes existing SAFE holders alongside founders.
Post-money SAFE (the current standard) — the cap describes the company’s value after all SAFE money has converted but before the priced round closes. The investor’s percentage is locked in at signing. A $500K post-money SAFE on a $10M cap is exactly 5% of the company at conversion, regardless of what other SAFEs exist. Founders bear all dilution from any subsequent SAFEs.
The practical implication: with post-money SAFEs you need to model cumulative dilution before raising each new SAFE. Stack three $500K SAFEs at $10M caps and you’ve already given away 15% of the company before the Series A term sheet arrives. Use cap table modeling to see how the dilution compounds, and read the dedicated breakdown of post-money SAFE mechanics for the investor-protection nuances.
Cap, discount, both, or neither
Beyond the post/pre choice, four economic structures dominate:
Valuation cap only — A cap (typically $5M–$15M for seed) sets the maximum company valuation for conversion. If the Series A prices the company at $20M but the SAFE has a $10M cap, the investor converts as if the company were worth $10M and gets twice as many shares as a Series A investor for the same dollar. Worked example:
- SAFE investment: $500,000
- Cap: $8,000,000
- Series A valuation: $16,000,000
- Series A price: $2.00/share
- SAFE conversion price: $1.00 (50% of Series A price)
- SAFE shares received: 500,000
Discount only — Investor pays a fixed percentage less per share than Series A investors. Standard discounts are 15–25%, with 20% most common. Simpler than a cap but less protective if valuations rise sharply.
Cap + discount — The investor takes whichever term gives them more shares. Maximum protection for the investor, maximum dilution for founders.
MFN (Most Favored Nation) — No cap, no discount. The SAFE auto-adopts the better terms of any future SAFE the company issues. Useful in friendly first-money situations; dangerous because future fundraising effectively rewrites this contract. The MFN-only variant is what people mean by an uncapped SAFE — Y Combinator’s canonical post-accelerator instrument.
| Structure | Typical range | Best when |
|---|---|---|
| Cap only | $5M–$15M cap | High growth expected |
| Discount only | 15%–25% off | Modest growth expected |
| Cap + discount | $5M–$12M cap, 20% off | Investor leverage |
| MFN | n/a | Strong founder leverage, friendly capital |
Pro rata rights — the investor’s right to maintain ownership in the next round — aren’t in YC’s template SAFE by default. Investors writing $500K+ checks usually negotiate them as a side letter.
What happens if the priced round never comes
Founders sometimes treat SAFEs as risk-free cash; investors sometimes treat them as effectively guaranteed equity. Neither is right.
A meaningful share of SAFE rounds never convert through a priced round. The company gets acquired earlier, fails before raising again, or bootstraps to profitability and never issues priced equity. In each scenario the SAFE outcome is different:
- Acquired below the cap — SAFE holders typically receive their investment back in cash, or convert to common at the cap, whichever the agreement specifies.
- Acquired above the cap — SAFE holders convert and share in the proceeds. Use waterfall analysis to see how proceeds split when SAFEs, convertible preferred stock, and common stock all sit on the cap table at exit.
- Failure — SAFE holders rank behind debt and usually recover nothing.
- Profitable bootstrapped company — SAFE may sit unconverted indefinitely; some agreements force conversion at long-stop dates, but most don’t.
Founder dilution math
The most common founder mistake is stacking SAFEs without modeling cumulative dilution. Raising $2M across 10–15 SAFEs at varying caps creates conversion math that surprises both sides at Series A.
A practical guardrail: cap total SAFE raises at roughly 20–30% of the anticipated Series A. A company seeking $5M at a $20M pre-money valuation with $2M in SAFEs at an $8M cap is asking new investors to pay 2.5× what SAFE holders pay per share for the same equity. Series A investors often demand SAFE renegotiation to close that gap, which sours relationships with the early-money investors who took the most risk.
Quick rules that hold up in practice:
- Model dilution scenarios before signing each SAFE, not after.
- Keep total SAFE proceeds under 20–30% of expected Series A round size.
- Set caps that reflect actual stage and traction; don’t anchor to peer valuations from a hot market.
- Track every outstanding SAFE in your cap table with cap, discount, MFN status, and signing date.
- If you’ve raised on pre-money SAFEs and post-money SAFEs in the same round, get a lawyer to model the conversion before the Series A closes.
Frequently Asked Questions
Is a SAFE better than a convertible note? For most US seed rounds, yes — no interest, no maturity, no extension conversations. Notes still appear in non-US markets and in bridge financings where debt-like features matter.
What if my company never raises a Series A? On acquisition, you usually convert to common or receive your money back. On failure, you receive nothing. On a bootstrapped, profitable path, the SAFE often sits unconverted unless the agreement specifies a long-stop conversion event.
How do I calculate shares received? Divide your investment by the conversion price (the lower of cap-implied price and discount-implied price). A $100K SAFE with an $8M cap converting at a $16M Series A yields 200,000 shares at $0.50.
Are SAFE terms negotiable? All of them — cap, discount, pro rata, MFN, side-letter information rights. Founders with traction negotiate higher caps and avoid discount stacks.
Do SAFE investors get voting rights? Not until conversion. After conversion they hold the same rights as other holders of that share class.
What’s a reasonable seed-stage cap? Most seed caps land between $5M and $15M, depending on traction, market, and team. Pre-product companies typically see $5–8M; companies with revenue can push toward $10–15M.