SAFEs, notes and angel rounds
Angel Investors: How to Review a SAFE or Term Sheet Before You Sign
The short answer
Before signing a SAFE or term sheet as an angel, check four things: (i) the document is what it claims to be (an unmodified YC post-money SAFE or a recognized seed form), (ii) the economics make sense once you model your ownership after the expected priced round, (iii) the company's basics are in order (Delaware C-Corp, founder vesting, IP assigned, a clean cap table), and (iv) your paperwork is complete (accreditation questionnaire, side letters, wire confirmation and records for QSBS and taxes). Most angel losses come from company risk, but avoidable losses come from non-standard documents and missing rights.
Key numbers
| Metric | Figure | Source and date |
|---|---|---|
| Median post-money SAFE cap, rounds of $250K to $1M | About $10M | Carta, 2025 |
| Median post-money SAFE cap, rounds of $1M to $2.5M | About $15M | Carta, 2025 |
| Average SAFE or note size | $276K | Carta, Q2 2026 |
| Share of SAFEs that are post-money | 82% | Carta, July 2025 |
| Median dilution at a priced seed | 19.5% | Carta, 2025 |
| Median dilution at Series A (software) | About 18% | Carta, six months to July 2026 |
| Exclusion for QSBS acquired after July 4, 2025 | 50% / 75% / 100% at 3 / 4 / 5 years | OBBBA (July 2025) |
Part 1: Is the document what it says it is?
- Compare against the official form. If the company says "YC post-money SAFE, valuation cap only", the text should match YC's published form word for word, apart from the blanks. YC's SAFE includes a statement that neither party has modified the form except to fill in blanks; changes hidden in the body undermine that statement. Startup Engine's review compares the uploaded text to the official version.
- Identify the version. Post-money or pre-money? Cap only, discount only, cap and discount, or MFN? Pre-money SAFEs and custom "SAFEs" can produce very different outcomes.
- Check the blanks. Company legal name and state of incorporation, purchase amount, cap, discount, date, governing law, signatory authority.
- Side letters. Is there a pro rata side letter, an MFN letter, an information rights letter? Ask whether other investors received side letters on better terms.
Part 2: Model your ownership
You invest $50,000 on a post-money SAFE with a $12,000,000 cap.
- Ownership just before the priced round: $50,000 / $12,000,000 = 0.417%.
- Assume a Series A sells 20% to new investors and tops up the pool by about 5 points of the post-closing capitalization. Your stake becomes roughly 0.417% x (1 - 0.20 - 0.05) = 0.31%.
- At a $300,000,000 exit, before further dilution and ignoring preferences: 0.31% x $300M = about $938,000, or about 19x.
- After a Series B and C (say 18% each), the same exit would return about $630,000. This is why pro rata rights matter if you plan to follow on.
Questions to ask the founders:
- How much is being raised in this round, on what caps, and how many SAFEs are already outstanding? (Under post-money SAFEs, more SAFEs do not dilute you, but they dilute the founders and affect the company's ability to raise a Series A.)
- What is the plan to the priced round, and what valuation do the founders expect?
- Is there an MFN SAFE outstanding whose holder could adopt better terms?
Part 3: Company basics (light diligence)
| Item | What to look for |
|---|---|
| Entity | Delaware C-Corp (or the YC non-US versions for Canada, Cayman or Singapore) |
| Cap table | Fully diluted, reconciled to documents; total SAFE overhang |
| Founder stock | Vesting with a cliff; 83(b) elections filed |
| IP | Technology assignments and CIIAAs from founders; contractor assignments |
| Board approval | Board consent approving the SAFE round |
| Prior financings | Form D filed for earlier rounds; no unregistered finders |
| Litigation and disputes | Any co-founder disputes, claims by former employers |
You do not need a full legal review for a $25,000 check, but a missing IP assignment or no founder vesting is a reason to ask questions, or to pass.
Part 4: Terms in a priced seed term sheet (investor view)
- Liquidation preference: 1x non-participating is market (96.4% non-participating in Cooley's Q2 2026 data); do not expect more.
- Major investor threshold: if information and pro rata rights go only to holders above a threshold you will not meet, consider investing through a syndicate or SPV that will qualify, or ask for a side letter.
- Pay-to-play: if present, understand whether you will need to invest in future rounds to keep your preferred rights; this can hurt angels without reserves.
- Drag-along: as a minority holder you will be bound; check that consideration is equal and liability capped.
- Shadow series for converting SAFEs: confirm that SAFE holders receive preferred with the same rights as new investors.
- Board: angels rarely get a seat; an observer seat or regular updates are reasonable asks for meaningful checks.
Part 5: Your paperwork
- Accreditation questionnaire, or verification documents if the company relies on Rule 506(c). Non-US angels: a Regulation S certification. See securities law.
- Countersigned documents: get the SAFE and side letters signed by the company, not just by you.
- Wire confirmation referencing the company's name; never wire to a personal account.
- Records for tax: date of funding, date of conversion, the company's statements about QSBS eligibility (ask for a QSBS representation or annual statement), and your basis. See QSBS after the 2025 changes.
- Form W-9 or W-8BEN if requested.
Red flags
- A "SAFE" with a maturity date, interest or repayment obligation (it is a note) or other non-standard edits.
- No valuation cap and no MFN (you have no price protection).
- A company that is an LLC or a foreign entity without a clear plan to become a Delaware C-Corp.
- Founders without vesting, or an inactive co-founder holding a large stake.
- A large stack of SAFEs at rising caps without a model of how they convert.
- Requests to pay a "finder" or to invest through an unregistered intermediary taking a commission.
- Pressure to sign today without seeing the cap table.
Questions to ask before you wire
- Can I see the current fully diluted cap table and the list of outstanding SAFEs and notes?
- Is this the unmodified YC form, and are there side letters with other investors?
- Who else is investing, and is there a lead?
- Have all founders signed vesting agreements, IP assignments and 83(b) elections?
- Will the company send quarterly updates, and will it state whether it believes its stock qualifies as QSBS?
Frequently asked questions
What should an angel check before signing a SAFE?
That it is the official form, which version it is, the cap and discount, any side letters, the cap table and total SAFE overhang, and basic company hygiene: Delaware C-Corp, founder vesting, IP assignments and board approval.
Should I ask for a pro rata side letter?
If you plan and can afford to invest in later rounds, yes. Companies often grant it only above a minimum check size.
How do I know my ownership after the SAFE converts?
For a post-money SAFE, divide your purchase amount by the post-money cap to get your stake just before the priced round, then apply the dilution from the new round and any pool increase.
Do angels get information rights with a SAFE?
Not under the standard SAFE. Ask for an information rights side letter, or rely on investor updates until the priced round.
Is my SAFE investment QSBS?
The shares you receive on conversion can qualify if the company meets the requirements. When the holding period starts is uncertain; keep records of both the funding and conversion dates.
Can a non-US angel invest in a US startup through a SAFE?
Yes, typically under Regulation S, with a certification that you are not a US person and with restrictions on reselling to US persons for one year.