The cap applies
US$500,000 on a post-money SAFE with a US$5m cap and no discount. The company then raises US$2.5m at a US$10m pre-money valuation.
10% at the cap. Converts at the cap into 10%, then 8% after the round.
Tools
SAFE calculator
Enter the SAFE and, if you like, the priced round it converts in. The results show the stake at the cap and after the round.
The SAFE
What the SAFE converts into
- Stake at the cap
- 10%
- Stake after the round
- 8%
- Converts at a valuation of
- US$5,000,000
At its US$5,000,000 cap, US$500,000 on a post-money SAFE converts into 10%: investment ÷ cap.
In a round at US$10,000,000 pre-money the SAFE could convert into 10% at the cap, 5% at the round price. It takes the largest, the cap: 10%.
The round sells 20% for US$2,500,000, so the SAFE holder ends with 8% and the founders and earlier holders with 72%.
| Holder | Before the round’s money | After the round |
|---|---|---|
| SAFE holder | 10% | 8% |
| Founders and earlier holders | 90% | 72% |
| New round investors | 0% | 20% |
How a SAFE converts
A SAFE (simple agreement for future equity) is cash now for shares later. It has no interest rate and no maturity date; it turns into shares when the company raises a priced round.
On a post-money SAFE the cap is the company's valuation including all the SAFE money, so the holder's stake at the cap is simply investment ÷ cap: US$500,000 at a US$5m cap is 10%, measured before the priced round's new money.
On the older pre-money SAFE the cap is the valuation before the SAFE money, so one SAFE converts into investment ÷ (cap + investment): US$500,000 at a US$5m cap is 9.09%. With several pre-money SAFEs each one dilutes the others, which is why the post-money form is easier to read.
At the priced round the SAFE converts at whichever price gives it more shares: the cap price, the round price less the discount, or the round price itself. The round then sells new shares, and everyone, the SAFE holder included, is diluted by the same proportion.
Left out on purpose: option pool top-ups, other SAFEs converting at the same time, pro rata side letters and MFN clauses. An uncapped MFN SAFE takes the best terms of SAFEs issued after it, so its result depends on documents this calculator cannot see.
Worked examples
Each one is worked through with the same maths as the calculator. The first is what the calculator shows when it loads.
The discount applies
US$250,000 on a post-money SAFE with a US$10m cap and a 20% discount. The round raises US$2m at a US$8m pre-money valuation, below the cap.
2.5% at the cap. Converts at the discounted round price into 3.91%, then 3.13% after the round.
A pre-money SAFE at the same cap
The first example again, written as a pre-money SAFE: US$500,000 with a US$5m pre-money cap, then US$2.5m at US$10m pre-money.
9.09% at the cap. Converts at the cap into 9.09%, then 7.27% after the round.
Questions about this calculator
How do I work out ownership on a post-money SAFE?
Divide the investment by the post-money valuation cap. US$125,000 at a US$1,785,714 cap is 7%. That is the stake measured after all SAFEs convert and before the priced round’s new money; the round then dilutes it.
What does a SAFE discount do?
It lets the SAFE convert at a lower price than the round’s new investors pay. With a 20% discount and a round at US$8m pre-money, the SAFE converts as if the company were worth US$6.4m. The SAFE uses the discount only when it beats the cap.
What is the difference between a pre-money and a post-money SAFE?
The cap on a post-money SAFE includes the SAFE money, so the stake is investment ÷ cap and does not move when the company issues more SAFEs. The cap on a pre-money SAFE excludes it, so the stake is smaller for the same cap and shrinks as more SAFEs are issued.
What happens to an uncapped SAFE?
With no cap and no discount it converts at the round price, as if the holder had bought into the round. An uncapped SAFE with an MFN (most favoured nation) clause can instead take the better terms of a SAFE the company issues later.
Why does my stake fall after the round?
The round issues new shares to its investors. If they buy 20% of the company, every earlier holder keeps 80% of what they had, so a 10% SAFE stake becomes 8%.
Related
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