SAFE Terms

$ K
SAFE investment in thousands
$ M
Maximum conversion valuation
%
Discount to Series A price
Series A Terms
$ M
Series A pre-money valuation
$
Series A price per share
SAFE Conversion Formula
Conversion Price = MIN(Cap Price, Discount Price)
Cap Price = Cap / Shares | Discount Price = Series Price x (1 - Discount)
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Conversion Result

Effective Conversion Price $1.60 Valuation Cap Triggered
Cap Price $1.60 Cap / Shares
Discount Price $1.60 Series x (1 - Discount)
Series A Price: $2.00
Implied Pre-Money Shares 5,000,000
Shares Received 312,500
SAFE Ownership 5.88%
Effective Discount 20.0%

*SAFE Ownership shown vs pre-money share base. Actual post-close ownership depends on Series A investment size.

Formula Breakdown

Model Assumptions
  • Pre-money SAFE (conversion calculated on pre-money basis)
  • Simple conversion (no pro-rata rights or MFN modeled)
  • Single SAFE holder
  • No interest accrual (SAFE, not convertible note)
  • Immediate conversion at Series A close

For educational purposes. Not financial or legal advice. Consult professionals for actual SAFE negotiations.

Understanding SAFE Conversion

What is a SAFE?

A SAFE (Simple Agreement for Future Equity) is a financing instrument created by Y Combinator that allows startups to raise capital quickly without setting a valuation. Unlike convertible notes, SAFEs are not debt - they have no interest rate, no maturity date, and no repayment obligation.

When the company raises a priced equity round (typically Series A), the SAFE converts into preferred stock at a price determined by the cap and/or discount terms.

SAFE Conversion Logic
Cap Price: Valuation Cap / Pre-Money Shares
Discount Price: Series A Price x (1 - Discount Rate)
Conversion Price: MIN(Cap Price, Discount Price)
SAFE holder gets whichever price is lower (more favorable)

Cap vs Discount: When Each Triggers

Valuation Cap

Protects the SAFE investor if the company's valuation increases significantly. The cap sets a ceiling on the conversion valuation, ensuring early investors get more shares if the Series A valuation exceeds the cap.

Discount

Provides a fixed percentage reduction from the Series A price. More valuable when the Series A valuation is at or below the cap. Typical discounts range from 15-25%.

Example Scenario

Consider a $500K SAFE with an $8M cap and 20% discount:

  • If Series A is at $10M pre-money, $2/share: Cap price = $8M/5M shares = $1.60. Discount price = $2 x 0.80 = $1.60. Both equal, so SAFE converts at $1.60/share.
  • If Series A is at $20M pre-money, $4/share: Cap price = $8M/5M shares = $1.60. Discount price = $4 x 0.80 = $3.20. Cap triggers (lower), SAFE converts at $1.60.
  • If Series A is at $6M pre-money, $1.20/share: Cap price = $8M/5M shares = $1.60. Discount price = $1.20 x 0.80 = $0.96. Discount triggers (lower), SAFE converts at $0.96.
Pre-Money vs Post-Money SAFEs: This calculator models pre-money SAFEs. Y Combinator's current standard is post-money SAFEs, which include all SAFE holders in the cap calculation, making ownership more predictable.

Frequently Asked Questions

A SAFE (Simple Agreement for Future Equity) is a financing instrument used by startups to raise capital. Unlike convertible notes, a SAFE is not debt - it has no interest rate, no maturity date, and no repayment obligation. The investor receives the right to convert their investment into equity at a future priced round, typically at a discount or subject to a valuation cap. SAFEs were created by Y Combinator in 2013 and have become standard for early-stage startup financing.

The valuation cap sets a maximum valuation at which the SAFE converts to equity. If the company raises at a higher valuation, the SAFE holder converts at the cap instead. For example, with an $8M cap, if Series A is at $20M pre-money, the SAFE holder converts at the $8M cap valuation, receiving more shares per dollar invested than Series A investors. This rewards early investors for taking risk before the company proved its value.

The discount gives the SAFE holder a percentage reduction from the Series A price per share. A 20% discount means the SAFE holder pays 80% of what Series A investors pay per share. If Series A investors pay $2/share, the SAFE holder would pay $1.60/share. The discount rewards early investors for taking more risk before the company had proven traction. Typical discounts range from 15% to 25%.

When both the valuation cap and discount result in the same conversion price, the SAFE holder simply converts at that price. This is relatively common when the cap and discount are intentionally set to be roughly equivalent at an expected Series A valuation. The investor always receives the benefit of whichever term produces the lower (more favorable) conversion price.

In a pre-money SAFE, the valuation cap applies to the company's capitalization before the SAFE converts, so the SAFE holder's ownership depends on how much other capital the company raises. In a post-money SAFE (Y Combinator's current standard since 2018), the cap includes all SAFE holders, making ownership more predictable. This calculator models pre-money SAFEs, which are simpler but less common today.

SAFEs typically convert into the same class of preferred stock issued in the triggering equity financing (usually Series A). This gives SAFE investors the same rights as the new investors, including liquidation preferences, anti-dilution protection, board observer rights, and other preferred stock terms. Some SAFEs may convert into a "shadow series" with slightly different terms to accommodate price differences.
Disclaimer

This calculator is for educational purposes only and uses a simplified pre-money SAFE model. Actual SAFE conversions involve additional complexities including option pool shuffles, multiple SAFE holders, MFN clauses, and pro-rata rights. This tool should not be used for investment decisions or legal purposes. Consult with qualified legal and financial professionals for actual SAFE negotiations.

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