SAFE (Simple Agreement for Future Equity)
Also known as SAFE Note, Simple Agreement for Future Equity, Post-Money SAFE, Pre-Money SAFE, YC SAFE
A SAFE is an equity-like instrument introduced by Y Combinator in 2013 that converts into preferred stock at the next priced round. SAFEs have no interest, no maturity, and no repayment obligation, and they convert based on a valuation cap, a discount, or both. The 2018 post-money SAFE made ownership immediately calculable: investment divided by post-money cap equals ownership.
Formula
Post-Money SAFE Ownership = Investment / Post-Money Valuation Cap- Investment
- Cash paid by the SAFE investor
- Post-Money Valuation Cap
- Cap negotiated in the SAFE, measured post all SAFE money
In depth
Y Combinator introduced the SAFE in late 2013 to replace convertible notes for early-stage rounds. The original 2013 version was a pre-money SAFE: the cap referenced the pre-money valuation of the next round, which meant each new SAFE diluted earlier SAFE holders in ways that were hard to model. In 2018 YC released the post-money SAFE, where the cap reflects ownership measured after all SAFE money is in but before the new priced round prices the company.
The post-money flavor is now standard. Four templates ship from YC: Cap only, Discount only, Cap and Discount, and Most Favored Nation (no cap or discount, with a clause that pulls in the best terms of any later SAFE). On conversion, the SAFE holder receives shares of preferred stock in the new financing at a price per share equal to the lower of (a) the round price reduced by the discount, or (b) the price implied by dividing the cap by the company capitalization defined in the SAFE.
The shift away from convertible notes was about removing two frictions: interest accrual that nobody really wanted to track, and maturity dates that created awkward conversations when rounds slipped. The SAFE assumes the next round will eventually happen.
Why it matters
Post-money SAFEs made early-stage cap tables legible. Pre-money SAFEs required cap table software to compute who actually owned what, and founders frequently miscalculated their own dilution because each new SAFE moved the answer. With a post-money SAFE, the investor knows immediately that $500K on a $10M cap buys 5% of the company (subject only to dilution from the new money in the priced round).
The cost of that legibility is founder dilution. Pre-money SAFEs spread dilution across all SAFE holders. Post-money SAFEs put 100% of the dilution from the SAFE round onto the founders and existing common holders. A founder who raises three rounds of post-money SAFEs at increasing caps before pricing the next round may be surprised by total dilution.
Worked example
A founder raises a $1M SAFE at a $10M post-money cap, then six months later raises a $500K SAFE at a $15M post-money cap. Twelve months later the company prices a Series A at $25M pre-money, $1.00 per share, with 18M fully diluted shares pre-money.
SAFE 1: $1.0M cap conversion = $1M / $10M post-money cap = 10.0% (pre Series A new money)
SAFE 2: $0.5M cap conversion = $0.5M / $15M post-money cap = 3.33% (pre Series A new money)
Round price test (SAFE 1) = $1M / $1.00 = 1.0M shares = 5.3% of post
Round price test (SAFE 2) = $0.5M / $1.00 = 0.5M shares = 2.6% of post
The cap is lower than the round price in both cases, so both SAFEs convert at the cap. Combined SAFE ownership immediately before the Series A new money lands: 13.3%. Founders and existing common holders absorb that dilution entirely, which is the defining feature of post-money SAFEs.
Frequently asked
What is the difference between a pre-money SAFE and a post-money SAFE?
The pre-money SAFE (2013-2018) used a pre-money valuation cap, so SAFE holders diluted each other as more SAFEs stacked up. The post-money SAFE (2018 onward) uses a post-money cap measured after all SAFE money but before the new priced round. Y Combinator's stated rationale is that ownership becomes immediately calculable from investment divided by cap.
Does a SAFE accrue interest or have a maturity date?
No. A SAFE is not debt. There is no interest rate, no maturity, and no repayment requirement. The SAFE sits on the cap table waiting for one of three triggers: a priced equity round, a liquidity event (acquisition or IPO), or a dissolution.
What happens to a SAFE in an acquisition before a priced round?
The SAFE typically gets the greater of its purchase amount returned in cash, or as-converted equity treatment at the cap. The exact mechanic is in the YC standard document and is one of the few places founders and investors negotiate substantive changes to the SAFE.
Can you mix pre-money and post-money SAFEs?
Yes, but it gets messy fast. Y Combinator warns that mixing creates cap table uncertainty because the two flavors compute ownership against different bases. Most cap table software handles the math, but founders should expect to run scenario models before closing any round that includes both.