SAFE

A SAFE is a Y Combinator instrument giving an investor the right to equity in a future priced round in exchange for capital today. The full name is Simple Agreement for Future Equity. There is no interest, no maturity date, and no creditor claim. The SAFE converts into preferred shares when the company next raises a priced round, typically at a valuation cap, a discount, or both. It is the default early-stage instrument in the United States, has been adopted globally as the dominant alternative to the convertible note, and quietly compounds dilution in ways most founders do not model until conversion.

The mechanic: an investor wires money today against a signed SAFE document. The company is not in debt and owes no interest. The SAFE sits on the cap table as an "unconverted instrument" until the company raises a priced equity round (typically Series A, sometimes Seed). At that moment, the SAFE converts into preferred shares of the round at whichever is more favorable to the investor: the discount to the round's per-share price (typical: 20%, sometimes 15-25%), or the implied price set by the SAFE's valuation cap (the cap divided by the post-money diluted share count). A SAFE with a $10M cap converting into a $30M pre-money Series A gives the investor roughly 3x more shares per dollar than a new Series A investor in the same round. Two flavors dominate: the post-money SAFE (current YC default since November 2018) calculates the cap after all SAFE money is counted, locking each SAFE investor's ownership percentage at signing; the pre-money SAFE (original 2013-2018 default, now rare) calculated the cap before SAFEs were counted, so dilution from stacking was absorbed by the SAFE investors themselves, not the founders. Typical 2025 early-stage SAFE terms: $250K-$2M check sizes, $5M-$25M valuation caps for pre-seed and seed, MFN clauses on smaller checks to prevent later SAFE investors from getting better terms. The most-cited real example: Y Combinator publishes the canonical SAFE templates at ycombinator.com/documents in four standard variants (cap-only, discount-only, cap-and-discount, MFN-only); these templates are used unmodified for the vast majority of US early-stage rounds. International variants exist (the British BSAFE, the Singaporean equivalent) but the YC US template is the de facto global standard.

What founders get wrong: Treating each SAFE as an independent slice of dilution rather than as a compounding stack. Post-money SAFEs hardcode each investor's ownership percentage at the moment of signing, which means subsequent SAFEs (and the priced round itself) dilute the founders, not the earlier SAFE holders. The founder, not the new investors, absorbs the extra dilution at the priced round.

Related: Convertible Note · Valuation Cap · Pre-money vs Post-money Valuation · Dilution · MFN Clause · Cap Table

FAQ

Is a SAFE debt?
No. A SAFE is not a loan. It has no interest rate, no maturity date, and no repayment obligation. It cannot come due and cannot be called. It only converts into equity when the company raises a priced round, at which point the SAFE investor receives preferred shares.

What is the difference between a SAFE and a convertible note?
A convertible note is debt with a stated interest rate (typically 5-8%) and a maturity date (typically 18-24 months), after which the note holder can demand repayment or force conversion. A SAFE has neither, which makes it simpler for the company but gives the investor no creditor claim. SAFEs dominate at the early stages; convertible notes are more common when the round closes via a syndicate that prefers debt-like protection.

What's the difference between a pre-money and post-money SAFE?
A pre-money SAFE calculates the valuation cap before any SAFE money is counted, so SAFE investors share dilution as more SAFEs are signed. A post-money SAFE (YC's default since 2018) calculates the cap after all SAFE money is counted, locking each investor's percentage at signing and pushing dilution onto the founders. Post-money is dramatically more common in 2025.

Why do post-money SAFEs increase founder dilution?
Each post-money SAFE locks that investor's ownership percentage at signing. When subsequent SAFEs are signed, or when the priced round closes, the math has to preserve each prior investor's percentage. The only way to do that is by issuing new shares against the founder block, not the prior SAFE blocks. Stacking three or four SAFEs at different caps can shift 5-10 percentage points of dilution onto the founders versus a single SAFE of equivalent total dollars.