Key takeaways
- A SAFE converts to shares at a later priced round; until then the holder owns no shares.
- The valuation cap is the highest valuation at which it converts; a discount lowers the price.
- Y Combinator's post-money SAFE has been its standard since 2018.
- Pro rata rights sit in an optional side letter, not in the SAFE itself.
How a SAFE note converts
Y Combinator describes the valuation cap as the highest valuation at which a SAFE converts, and the discount as a lower price than the next priced round pays. If a SAFE has both, the holder gets whichever gives more shares. YC also offers an MFN version with neither, which takes the best terms of later SAFEs. The U.S. SEC notes that a SAFE holder has no ownership interest unless the triggering event happens.
A worked example
An angel invests $500,000 on a post-money SAFE with a $5 million post-money valuation cap. On a post-money SAFE the holder's stake is set by dividing the investment by the cap: 10 percent of the company as it stands just before the priced round. The new round's investors then buy new shares, which dilutes everyone, the SAFE holder included. A SAFE conversion calculator shows the steps.
Why funds care about outstanding SAFEs
Unconverted SAFEs do not appear as shares, so a cap table that ignores them overstates the founders' ownership. In diligence, a fund asks for every SAFE and note, checks caps and discounts, and models the fully diluted position before agreeing a price.
Common confusions
- "SAFE note" is a misnomer. A note is debt; a SAFE is not.
- Pre-money and post-money caps describe valuation at different moments, so the same number gives different ownership.
- A SAFE is not a convertible note, which accrues interest and has a maturity date.
Sources
- Y Combinator: SAFE financing documents (checked 6 November 2026)
- U.S. SEC: What different types of securities are issued to startup investors? (checked 6 November 2026)
Facts about other companies and services come from the pages listed, on the dates shown, and can change.