SAFEs, notes and angel rounds
SAFE Explained: Post-Money vs Pre-Money, Valuation Cap, Discount, MFN and Pro Rata
The short answer
A SAFE (simple agreement for future equity) is a contract in which an investor pays money now and receives shares later, usually when the company sells preferred stock in a priced round. It is not debt: no interest and no maturity date. In the post-money SAFE, which Y Combinator has published since 2018 and which accounts for about 82% of SAFEs on Carta, the investor's ownership at conversion is fixed at roughly purchase amount divided by the post-money valuation cap, so every additional SAFE dilutes the founders, not earlier SAFE holders. The cap-only post-money SAFE remains the standard pre-seed instrument in 2025-2026.
Key numbers
| Metric | Figure | Source and date |
|---|---|---|
| Share of SAFEs that are post-money | 82% of nearly 120,000 SAFEs | Carta, July 2025 |
| SAFE type mix | Cap only 61%, cap and discount 30%, discount only 8% | Carta, 8,762 SAFEs in 2024 |
| Median post-money cap, rounds of $250K to $1M | About $10M | Carta, State of Pre-Seed 2025 |
| Median post-money cap, rounds of $1M to $2.5M | About $15M | Carta, State of Pre-Seed 2025 |
| Median cap, SAFE rounds over $2.5M | $35M (75th percentile near $60M) | Carta, Q2 2026 |
| Average SAFE or note size | $276K, up 27% year over year | Carta, Q2 2026 |
| Pre-seed money raised on SAFEs and notes | $10.4B across 50,316 instruments | Carta, full year 2025 |
| YC standard deal | $125K post-money SAFE for 7% plus $375K uncapped MFN SAFE | YC, as quoted in 2026 |
How a SAFE works
- The investor signs the SAFE and wires the purchase amount.
- Nothing is issued yet. The SAFE sits on the cap table as a right to future shares.
- At the next equity financing (a priced round of preferred stock), the SAFE converts automatically into shares of a series of preferred stock, usually a shadow series with the same rights as the new preferred but with a liquidation preference based on the SAFE price.
- If the company is sold before a priced round, the investor receives the greater of the purchase amount (a cash-out) or the amount payable on the shares the SAFE would convert into at the cap.
- If the company dissolves, SAFE holders are paid back from remaining assets after creditors, ahead of common stockholders, to the extent funds are available.
The valuation cap
The cap sets the maximum valuation at which the SAFE converts. If the priced round values the company above the cap, the SAFE holder converts at the lower, capped price and gets more shares than new investors per dollar. If the round is below the cap, the SAFE converts at the round price (or at a discount, if the SAFE has one).
Post-money cap
In the post-money SAFE, the conversion price is the cap divided by the "Company Capitalization" immediately before the priced round. That capitalization counts all outstanding shares, outstanding and promised options, the unissued option pool and all converting securities, including this SAFE and every other SAFE. It does not count the new money in the priced round, and it excludes any pool increase made in connection with the round, except as needed to cover promised options.
The practical result: ownership at conversion is approximately purchase amount / post-money cap. A $500,000 SAFE at a $10,000,000 post-money cap converts into 5% of the company as measured just before the priced round, regardless of how many other SAFEs are signed.
Pre-money cap
The original 2013 SAFE and many notes use a pre-money cap: the conversion price is the cap divided by the pre-money capitalization, which excludes the SAFEs themselves. Each SAFE holder's percentage then depends on how many other SAFEs convert at the same time, and all SAFE holders share the dilution with founders.
Same terms, different math. Acme has 9,000,000 shares fully diluted (8,000,000 founder shares plus a 1,000,000 share pool). It raises one SAFE of $1,000,000 with a $10,000,000 cap.
- Post-money cap: the SAFE takes 10% of the capitalization including itself. Shares = 9,000,000 x 10% / 90% = 1,000,000. Price = $10,000,000 / 10,000,000 = $1.00. Ownership = 10.0%.
- Pre-money cap: price = $10,000,000 / 9,000,000 = $1.111. Shares = 900,000. Ownership = 900,000 / 9,900,000 = 9.09%.
With one SAFE the difference is under one point. With several SAFEs it compounds, because under the post-money form the founders absorb all of the stacking. See the SAFE dilution calculator explained.
The discount
A discount lets the SAFE convert at a percentage below the priced round's price, typically 20% (range 10% to 30%). In a SAFE with both a cap and a discount, the investor gets whichever produces the lower price. YC currently publishes a "discount only" post-money SAFE; a cap-and-discount combination is still common in practice (30% of SAFEs in 2024 per Carta) and is usually documented on other forms or through side arrangements.
MFN (most favored nation)
An uncapped MFN SAFE has no cap and no discount. Instead, if the company later issues SAFEs on better terms (for example with a cap) before the priced round, the MFN holder can elect to adopt those terms. YC uses an uncapped MFN SAFE for part of its standard deal. For founders, MFN is cheap early but means the first capped SAFE you sign later sets the terms for the MFN holder too.
Pro rata side letter
The YC pro rata side letter gives a SAFE holder the right to buy a portion of the priced round in which the SAFE converts, in proportion to its ownership. The current YC version grants that right in the round where the SAFE converts (the next priced round). Many seed funds request it; it is usually reasonable for meaningful checks and less so for very small ones. See pro rata and information rights.
Why the YC form should stay unmodified
The YC SAFE is published under a Creative Commons Attribution-NoDerivatives license, and the form itself states that the parties have not modified it except to fill in blanks. Investors rely on that statement: they know exactly what they are signing. Non-standard terms (information rights, an MFN as a side letter, a board observer seat) belong in a separate side letter, not in edits to the SAFE text. Always compare any document labeled "SAFE" against the official form.
Founder checklist before signing a SAFE
- Model the total dilution of all SAFEs you plan to raise before the priced round (as a rule of thumb, more than 20% to 25% of total SAFE dilution gets hard to explain to a Series A lead).
- Use the same cap for SAFEs in the same raise unless there is a clear reason.
- Get board approval for each SAFE and file Form D within 15 days of the first sale if you rely on Regulation D.
- Collect investor accreditation information. See securities law for startup fundraising.
- Record each SAFE in the cap table on the day the money arrives.
Frequently asked questions
Is a SAFE debt or equity?
Neither, in legal form. It is a contractual right to receive equity in the future. It has no interest and no maturity and generally sits below creditors and above common stockholders in a dissolution. For tax purposes its treatment is not settled; many practitioners treat it as equity-like.
What is the difference between a post-money and a pre-money SAFE?
The definition of the capitalization used to calculate the conversion price. Post-money includes all SAFEs, so each investor's percentage is fixed and founders absorb the dilution from additional SAFEs. Pre-money excludes the SAFEs, so SAFE holders share that dilution.
What is a typical SAFE valuation cap in 2026?
It depends on round size and sector. Carta reports medians of about $10M for 2025 SAFE rounds of $250K to $1M and about $15M for $1M to $2.5M, while SAFE rounds above $2.5M had a median cap of $35M in Q2 2026.
Does a SAFE give the investor a board seat or voting rights?
No. SAFE holders have no vote and no board seat until conversion. Some investors ask for observer rights or information rights in a side letter.
What happens to a SAFE if the company never raises a priced round?
It stays outstanding. If the company is sold, the holder gets the greater of the purchase amount and the as-converted amount. If the company dissolves, the holder is repaid to the extent assets remain after creditors.
Can I negotiate the YC SAFE?
You can negotiate the blanks (purchase amount, cap, discount) and which version to use, and agree side letters. You should not edit the text of the form itself.