Answer

What is a SAFE note?

Updated August 2026. Evergreen page — refreshed in place as facts change.

Most first startup money in the US now arrives on SAFEs. They're five pages, free to use, and genuinely simple — right up until several of them convert at once and founders discover what they signed. Here's the mechanism and the arithmetic.

The mechanism: money now, shares later

A SAFE postpones the hardest early question — what's this company worth? — by deferring pricing to the next equity round. The investor wires funds today; when you later raise a priced round, the SAFE converts into shares at that round's terms, adjusted by whichever of its own terms is more favorable to the investor: a valuation cap (the maximum valuation their conversion price assumes) or a discount (typically 10–25% off the round price).

Until conversion, the SAFE holder owns a contractual right, not shares — no board seat, no vote, nothing on the cap table but a footnote. That's the founder-friendly part.

Caps and discounts, with numbers

Say an investor puts $100,000 on a SAFE with a $5 million post-money cap, and you later raise a Series A at $20 million. Their money converts as if the company were worth $5 million — buying roughly 2% — while new money buys at $20 million. The cap rewarded their early risk fourfold.

A discount works similarly but relative: 20% off the round price, whatever it is. SAFEs with both convert at whichever term gives the investor more shares. SAFEs with neither (uncapped, no discount) convert at the round price itself — rare outside special cases like YC's MFN tranche.

Post-money SAFEs: the 2018 change that matters

YC's revised 2018 documents made caps 'post-money': each SAFE's ownership percentage is fixed at conversion regardless of other SAFEs raised after it ($500K on a $5M post-money cap = 10%, full stop). That's cleaner math per investor — and it means every additional SAFE dilutes only the founders until the priced round arrives.

This is the classic surprise: raise $2M across post-money SAFEs at various caps, model nothing, and discover at Series A that 25–30% of the company converted away before the round's own dilution. The fix is unglamorous — keep a running conversion model from the first SAFE.

SAFEs vs convertible notes

Convertible notes do the same job as debt: they carry interest (accruing to more shares) and a maturity date (a repayment or forced-conversion trigger). SAFEs dropped both, removing the awkward possibility of your seed investor technically being able to call a loan. Notes persist in some geographies and bridge situations, but for standard US early rounds the SAFE won.