What is a SAFE? How a post-money SAFE works and what it costs you
By Corply · Updated
A SAFE is a right to receive shares later, usually in your next priced round. On the post-money form, the amount invested divided by the valuation cap tells you roughly what you are selling.
1. A future share, not a share today
What the investor actually buys
SAFE stands for Simple Agreement for Future Equity. Y Combinator published it in 2013 and replaced it with the post-money version in 2018. The investor pays now and receives no stock now. In exchange, the company promises shares when a qualifying event happens: most often a priced equity round, when the SAFE converts into the same preferred stock the new investors buy.
If the company is sold or dissolves before that round, the SAFE's liquidity and dissolution terms decide what the holder receives. Until then, a SAFE has no interest rate, no maturity date and no repayment obligation. That is the main difference from a convertible note, which is debt.
Why founders use them
A SAFE can close in a day. There is no price per share to negotiate, no new class of stock to authorize, and the document is one investors already know. You can sign investors one at a time, as each is ready, instead of coordinating a single closing.
| SAFE | Convertible note | Priced round | |
|---|---|---|---|
| What the investor holds | A right to future shares | Debt that converts to shares | Shares, issued now |
| Interest and maturity | None | Yes, usually both | Not applicable |
| Valuation set now | Only a cap, if any | Only a cap, if any | Yes, a price per share |
| Typical paperwork | One standard agreement | Note plus purchase agreement | Charter amendment, purchase agreement, investor rights |
Because nothing is issued at signing, the stock ledger does not change when the money arrives. Your cap table should still list every SAFE with its amount, form and terms. Leaving SAFEs off is the most common reason a founder's ownership estimate is wrong going into a priced round.
2. Read the cap as a percentage
The post-money form measures the cap after all SAFEs are counted, so each investor's share is knowable at signing. A $500,000 SAFE at a $10,000,000 post-money cap converts into about 5% of the company, measured just before the priced round's new money comes in.
A hypothetical seed raise
| Investor | Amount | Post-money cap | Converts into about |
|---|---|---|---|
| Investor A | $1,000,000 | $12,000,000 | 8.33% |
| Investor B | $400,000 | $12,000,000 | 3.33% |
| Investor C | $100,000 | $12,000,000 | 0.83% |
| Total | $1,500,000 | 12.5% |
If the founders held 100% before, they hold about 87.5% before the priced round. The priced round then dilutes everyone, SAFE holders included.
Who absorbs the dilution
In the standard post-money form, the capitalization used for a capped conversion includes all converting securities and the option pool, including an increase made in connection with the financing. That protects the SAFE holder's percentage. More SAFEs and a bigger option pool come out of the founders' and existing stockholders' share, not the earlier SAFE holders'.
This is the trade the form makes: investors get a predictable percentage, and founders carry the cost of raising more on SAFEs. Before each new SAFE, add it to the table and recompute your own ownership instead of tracking only the total raised.
3. Cap, discount or MFN
Y Combinator's post-money SAFE comes in standard versions that differ only in how the conversion price is set.
| Version | How it converts | When it tends to come up |
|---|---|---|
| Valuation cap | At the lower of the cap's price and the round price | Most seed SAFEs; the percentage is knowable at signing |
| Discount | At the round price times the discount rate (a 20% discount pays 80%) | When neither side wants to set a valuation yet |
| MFN | No cap or discount; the holder may take better terms the company gives a later SAFE | Very early checks from friends, family or angels |
A company can hold all three at once. When you model a priced round, convert each SAFE under its own terms rather than applying one assumed price to all of them. If an earlier SAFE carries MFN rights and you later offer better terms, you owe that holder a notice.
Much of a SAFE's value comes from investors recognizing the document. If someone asks for something outside the form, such as pro rata rights, Y Combinator publishes a separate side letter for it. Requests beyond the standard documents are a reason to involve counsel, not to edit the SAFE yourself.
4. How Corply handles SAFEs
Ask Corply: “Open a $1.5M seed round on a post-money SAFE at a $12M cap, then show me the cap table with every SAFE at its cap.”
Corply fills in Y Combinator's standard post-money forms without changing their text and records the version used. The board approves the round once; each investor signs, pays, and the company countersigns after the money lands. Every SAFE then appears on your cap table fully diluted at its cap.
Corply is not a law firm or an investment adviser. It calculates what the numbers you enter mean and keeps the round's records. The terms are a negotiation between the company and its investors, with advice from your own counsel.
5. Common questions
Does a SAFE investor own shares right away?
No. The holder owns a contract right that converts into shares under the SAFE's terms, usually at the next priced equity financing.
Is the post-money cap my company's valuation?
No. It is the maximum valuation used to price the SAFE's conversion. A priced round can set a higher or lower valuation, and the SAFE's terms decide the price its holder pays.
Do SAFEs count as debt?
No. A SAFE has no interest rate, maturity date or repayment schedule. Its holder is paid back only in the liquidity or dissolution events the SAFE describes.
Can Corply tell me what cap to accept?
No. Corply shows what the numbers you enter mean for your cap table. Choosing terms is a negotiation, and your counsel should review anything outside the standard forms.
This page is general education, not legal or tax advice, and reading it does not create an attorney-client relationship. Corply is operated by 0Lumen Labs Corp., is not a law firm, and routes questions that need individualized judgment to licensed professionals. Rules and fees change, so verify current requirements with the relevant state, the IRS, or your counsel.