A SAFE — Simple Agreement for Future Equity — is a contract between a startup and an investor where the investor provides money now in exchange for the right to receive equity later, at a future priced round. Created by Y Combinator in 2013, SAFEs have become the dominant instrument for pre-seed and seed-stage funding because they are simpler than convertible notes and faster to close.
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A SAFE investor gives you money today. In return, they get the right to convert that investment into equity shares when you raise a priced round. The conversion price is usually capped (a valuation cap — the maximum price they pay per share) or discounted (a percentage reduction on the round price) or both. If the company is acquired before conversion, SAFEs typically have a payout provision. If the company fails, the SAFE investor loses their investment — there is no debt to repay.
The most important distinction in modern SAFEs is pre-money vs. post-money. A post-money SAFE (the current Y Combinator standard) gives the investor a guaranteed ownership percentage calculated on the post-SAFE company valuation — meaning the SAFE dilution comes out of the founders, not the next round investors. A pre-money SAFE calculates ownership before accounting for the SAFE itself, so dilution is shared more broadly. Equafy models both types natively in its convertible instrument simulation, so you see the exact dilution impact before signing.
| Pre-money SAFE | Post-money SAFE | |
|---|---|---|
| Ownership calculated | Before accounting for the SAFE itself | On the post-SAFE valuation — a guaranteed percentage |
| Who absorbs the dilution | Shared more broadly | The founders, not the next round's investors |
| Status | The earlier structure | The current Y Combinator standard |
SAFEs don't appear as shares on the cap table until they convert. Before conversion, they are listed as pending obligations. Equafy tracks active SAFEs and shows their projected dilution impact in the round simulator — so you can model what a priced round looks like with all outstanding SAFEs converting simultaneously. At conversion, the Issue Shares feature records the new shares and marks the instruments as converted, keeping the cap table clean and auditable.
A SAFE is invisible until it isn't
Before conversion a SAFE is a pending obligation, not a line of shares. Equafy tracks active SAFEs and projects their dilution in the round simulator, so you can model a priced round with every outstanding SAFE converting at once.
The valuation cap is the maximum company valuation at which the SAFE converts — protecting the investor if the company's valuation spikes. The discount rate gives the SAFE investor a percentage reduction on the round price (e.g. 20% discount means they pay $0.80 for every $1.00 share). When both a cap and a discount apply, the investor gets whichever gives them the lower conversion price — and therefore more shares. Understanding these mechanics is essential for modeling your true dilution before you sign.
Cap and discount, together
A 20% discount means the SAFE investor pays $0.80 for every $1.00 share. When a valuation cap and a discount both apply, the investor gets whichever produces the lower conversion price — and therefore more shares.
No. A convertible note is debt with an interest rate and a maturity date — the company is legally obligated to repay it if conversion doesn't happen. A SAFE is not debt; it has no interest and no maturity date. SAFEs are simpler and founder-friendlier.
A SAFE typically converts at the next priced equity round, at an acquisition, or at an IPO. Some SAFEs have a maturity date that triggers conversion or repayment if a conversion event hasn't occurred.
All outstanding SAFEs convert at the same priced round, but their conversion prices may differ based on individual caps and discounts. Equafy's round simulator handles multiple simultaneous SAFE conversions and shows the cumulative dilution impact.
Yes — at the moment of conversion, new shares are issued to SAFE investors, diluting everyone else. Post-money SAFEs in particular dilute founders specifically. Modeling this before closing SAFE rounds is essential for maintaining an accurate picture of your ownership.
Equafy models pre-money and post-money SAFE conversions natively — so you always know your real ownership before committing to a term sheet.
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