Safe Note Calculator
Calculate equity conversion from SAFE notes using pre-money, post-money, and MFN terms. Enter values for instant results with step-by-step formulas.
Formula
Effective Price = min(Cap / Shares, Price x (1 - Discount))
The SAFE converts at whichever method yields the lower price per share (more shares for the investor). Cap Price divides the valuation cap by existing shares. Discount Price multiplies the Series A price by (1 - discount rate). The investor receives shares equal to their investment divided by the effective price.
Worked Examples
Example 1: SAFE with $5M Cap and 20% Discount
Problem: An investor puts $500,000 into a startup via SAFE with a $5M valuation cap and 20% discount. The startup later raises Series A at $10M pre-money with 10M existing shares.
Solution: Price per share at pre-money: $10M / 10M = $1.00\nPrice at cap: $5M / 10M = $0.50\nPrice at discount: $1.00 x (1 - 0.20) = $0.80\nEffective price: min($0.50, $0.80) = $0.50 (cap wins)\nShares from SAFE: $500,000 / $0.50 = 1,000,000 shares\nOwnership: 1,000,000 / 13,000,000 total = ~7.69%
Result: Conversion at cap price of $0.50/share yields 1,000,000 shares (~7.69% ownership)
Example 2: Multiple SAFEs Before Series A
Problem: Two SAFEs: $250K at $4M cap and $500K at $8M cap. Series A at $12M pre-money with 10M shares outstanding.
Solution: SAFE 1: Price at cap = $4M/10M = $0.40, Shares = $250K/$0.40 = 625,000\nSAFE 2: Price at cap = $8M/10M = $0.80, Shares = $500K/$0.80 = 625,000\nSeries A price = $12M/10M = $1.20\nTotal shares post-conversion: 10M + 625K + 625K + new round shares\nSAFE 1 ownership: ~5.2%, SAFE 2 ownership: ~5.2%
Result: Both SAFEs convert at cap prices, yielding 625,000 shares each with combined ~10.4% dilution
Frequently Asked Questions
What is a SAFE note and how does it work for startups?
A SAFE (Simple Agreement for Future Equity) is an investment contract created by Y Combinator that allows investors to provide capital to a startup in exchange for the right to receive equity at a future priced round. Unlike convertible notes, SAFEs have no interest rate and no maturity date, making them simpler and more founder-friendly. When the startup raises a priced equity round, the SAFE automatically converts into shares at a price determined by either a valuation cap or a discount rate, whichever gives the investor more shares. SAFEs have become the most common instrument for early-stage fundraising because they reduce legal complexity and negotiation time compared to traditional equity rounds.
How does the valuation cap protect SAFE investors?
The valuation cap sets a maximum company valuation at which the SAFE converts into equity, regardless of how high the actual valuation goes in the priced round. If a startup raises a Series A at a $20 million pre-money valuation but the SAFE had a $5 million cap, the investor converts at the $5 million valuation, receiving four times more shares than Series A investors per dollar invested. This mechanism rewards early investors for taking greater risk when the company was less proven. The cap essentially guarantees a minimum ownership percentage, ensuring that spectacular company growth between the SAFE investment and the priced round benefits the early investor proportionally.
How does the discount rate work in a SAFE note conversion?
The discount rate gives SAFE holders a percentage reduction on the price per share paid by investors in the qualifying priced round. A typical 20% discount means the SAFE investor pays 80% of what Series A investors pay per share, effectively getting 25% more shares for the same investment. The discount rewards early-stage risk without requiring a specific valuation estimate. When a SAFE has both a valuation cap and a discount rate, the investor receives whichever conversion method yields more shares. In practice, if the company does very well, the valuation cap usually provides better terms, while the discount is more favorable when the priced round valuation is closer to the cap.
How do SAFE notes affect founder dilution at Series A?
SAFE notes create dilution when they convert into equity at the priced round, and the total dilution depends on how many SAFEs were issued and their conversion terms. A common scenario involves founders holding 80% after SAFEs convert, with 15-20% going to Series A investors and the remainder to SAFE holders. Multiple SAFEs with low valuation caps can compound dilution significantly, sometimes surprising founders who did not model the cap table carefully. Using post-money SAFEs helps founders track dilution more accurately since each SAFE ownership percentage is fixed at the cap amount. Founders should use a cap table calculator to model various scenarios before accepting SAFE investments.
Can SAFE notes have both a valuation cap and a discount rate?
Yes, most SAFE notes include both a valuation cap and a discount rate, and the investor receives whichever term produces a lower price per share at conversion, resulting in more equity. This dual protection is standard practice because it covers different valuation scenarios at the priced round. If the company raises at a valuation significantly above the cap, the cap determines conversion. If the company raises at a valuation near or below the cap, the discount typically provides better terms. Having both terms does not mean the investor gets to apply both simultaneously. Only one conversion method applies per SAFE, determined by which gives the investor the more favorable price per share.
What happens to a SAFE note if the startup never raises a priced round?
Since SAFEs have no maturity date or interest accrual, they remain outstanding indefinitely if no qualifying priced round occurs. If the startup is acquired before a priced round, most SAFEs include dissolution provisions that either return the original investment amount or convert at the valuation cap for the acquisition, whichever is greater. If the startup fails and shuts down, SAFE holders are treated as unsecured creditors and typically recover nothing after debts and secured creditors are paid. Some SAFEs include a most favored nation clause allowing investors to benefit from better terms offered to later SAFE investors. This indefinite nature makes SAFEs riskier than convertible notes, which at least have a maturity date forcing a resolution.