All you need to know about SAFEs (includes calculator)

If you're raising pre-seed or seed funding, you've almost certainly come across the term “SAFE”. It stands for Simple Agreement for Future Equity, and it's become the most common instrument for early-stage fundraising — especially in the US, and increasingly in the UK and Europe.

But despite the name, SAFEs aren't always simple to understand. This guide explains how they work, when they make sense, and what founders need to watch out for. Make sure you check out the easy-to-use calculator below so you can get a feel for the real-world dynamics.

What is a SAFE?

A SAFE is a legal agreement between a startup and an investor. The investor gives the company money now, and in return receives the right to convert that investment into equity later — typically when the company raises a priced round (like a Series A).

SAFEs were created by Y Combinator in 2013 as a simpler, faster alternative to convertible notes. Unlike convertible notes, SAFEs are not debt — they don't have interest rates, maturity dates, or repayment obligations. They're just a promise of future equity.

How does a SAFE convert into equity?

When a qualifying event happens — usually a priced equity round — the SAFE converts into shares. The number of shares the investor gets depends on two key terms:

• Valuation cap — the maximum valuation at which the SAFE will convert. If the company is valued higher than the cap at the next round, the SAFE investor converts at the cap instead, getting more shares per pound invested.
• Discount rate — a percentage discount (commonly 10–20%) applied to the price per share in the next round. If the discount gives a better price than the cap, the investor gets whichever is more favourable.

Some SAFEs have both a cap and a discount. Some have only one. The investor receives whichever term gives them more shares.

Post-money vs pre-money SAFEs

This is one of the most important — and most misunderstood — distinctions in SAFE agreements.

Pre-money SAFEs (original YC version, pre-2018)

With a pre-money SAFE, the valuation cap refers to the company's value before the SAFE investment is added. This means the investor's ownership percentage depends on how much total SAFE money the company raises — and founders often don't know their exact dilution until the priced round happens.

Post-money SAFEs (current YC standard)

Since 2018, YC's standard SAFE is post-money. The valuation cap includes the SAFE investment itself. This makes dilution much more predictable: if an investor puts in £500k on a £5M post-money cap, they'll own 10% when the SAFE converts — regardless of how many other SAFEs the company has signed.

The trade-off is that each additional SAFE dilutes founders directly, not the whole cap table proportionally. As a founder, you need to track your total SAFE commitments carefully.

When should founders use a SAFE?

SAFEs are typically a good fit when:

• You're raising a small pre-seed or seed round and want to close quickly without negotiating a full term sheet
• You're doing a rolling close — taking money from multiple angels over weeks or months rather than one big close
• You need bridge funding between priced rounds and don't want to set a valuation yet
• You want to minimise legal costs — SAFEs are standardised and typically cost little or nothing in legal fees

What should founders watch out for?

1. Stacking SAFEs can cause heavy dilution

Because SAFEs don't convert until a priced round, it's easy to keep signing more of them without feeling the dilution. But when they all convert at once, founders can be surprised by how much equity they've given away.

Tip: Use a cap table modelling tool to track your outstanding SAFEs and see what your ownership will look like after conversion.

2. Pro-rata rights and side letters

Some SAFE investors negotiate pro-rata rights — the right to invest more in future rounds to maintain their ownership percentage. This is common and usually reasonable, but too many pro-rata commitments can make future rounds harder to manage.

3. MFN clauses

A Most Favoured Nation clause says that if you issue a later SAFE with better terms (e.g., a lower cap), earlier SAFE holders can adopt those terms. This protects early investors but means you can't easily lower your cap later without affecting all existing SAFEs.

4. No maturity date doesn't mean no expectations

Unlike convertible notes, SAFEs don't expire. But investors still expect a conversion event (usually a priced round) within a reasonable timeframe — typically 18–24 months. If your company never raises a priced round, SAFEs may never convert, which can create awkward dynamics.

SAFEs vs convertible notes

Convertible notes were the standard before SAFEs existed. Here's how they compare:

For most early-stage raises, SAFEs are simpler, faster, and cheaper. Convertible notes still have a place — particularly in markets where debt instruments have tax advantages, or when investors specifically require them.

How SAFEs affect your cap table

Until they convert, SAFEs don't appear as equity on your cap table. But they represent a future claim on equity, so any serious cap table model needs to account for them.

When modelling your cap table, you should include:

• The SAFE amount and valuation cap
• Whether it's pre-money or post-money
• Any discount rate
• The expected conversion trigger (e.g., your next priced round)

This lets you see what your ownership will look like after conversion — which is the number that actually matters when you're negotiating your next round.

Key takeaways

• SAFEs are the standard instrument for pre-seed and seed fundraising — they're fast, cheap, and founder-friendly
• Post-money SAFEs (the current YC standard) make dilution predictable but stack directly against founders
• Always model your SAFEs in your cap table to avoid dilution surprises at your next priced round
• Watch out for stacking too many SAFEs, pro-rata commitments, and MFN clauses
• SAFEs are not legal advice — always work with a lawyer when issuing or signing one