To read a SAFE before your first investor check, look at four things first: which form it is (valuation cap, discount, or MFN), the cap number, whether anything was changed from the standard Y Combinator template, and which side letters come with it. Then do the math yourself. On a post-money SAFE, ownership sold is the check divided by the cap, so $250,000 on a $5 million post-money cap is 5% of your company, and every SAFE you stack comes out of the founders' share. Track each SAFE the day you sign it, keep the form unmodified, and pay a startup lawyer for an hour before the money lands.
This is a plain-English guide for first-time founders, not legal or tax advice. Have a startup lawyer review anything you sign. Facts about the YC forms were checked in October 2026, and the startup and investors in the examples are made up.
What is a SAFE, in plain words?
A SAFE (simple agreement for future equity) is a short contract. An investor gives you money today for the right to shares later, when you raise a priced round. No price per share is set now; the SAFE says how it will be worked out then.
Y Combinator introduced the original SAFE in late 2013 to replace convertible notes, and moved to the post-money version in 2018. As of Oct 2026, the official YC SAFE page still publishes the forms for free.
What a SAFE is not matters as much as what it is:
It is not debt. No interest, no maturity date, no repayment demand when time runs out.
It is not stock yet. Your SAFE investor is not a shareholder, does not vote and gets no board seat from the SAFE.
It is not free money. Nothing shows up on your cap table on day one, but it is dilutive. You pay the bill later, at the priced round.
The SAFE converts automatically when you sell preferred stock in a priced round (an Equity Financing in the document). A sale or IPO first is a Liquidity Event; a shutdown is a Dissolution Event.
Which SAFE forms does YC publish?
As of Oct 2026, the YC page lists three post-money SAFE forms for US companies, plus one optional side letter. The YC user guide also describes a fourth version that combines a cap and a discount, but it is not one of the downloads on the page today. You will still see it in the wild.
Form | What it means | When founders usually see it |
|---|---|---|
Valuation Cap, no Discount | Converts at the cap if your priced round values the company above it. YC calls this the standard version. | Most angel and friends checks. The default you should expect. |
Discount, no Valuation Cap | Converts at a price below what new investors pay in the priced round. YC says discounts are commonly 10 to 20%. | Smaller checks where nobody wants to argue about a valuation yet. |
Uncapped MFN (no cap, no discount) | No terms of its own. If you later issue SAFEs with better terms, this investor can take those terms. | Very early checks before you have picked a cap, and accelerator deals. YC itself invests part of its standard deal this way. |
Pro Rata Side Letter (optional) | A separate letter giving the investor the right to buy more in the round where the SAFE converts, to keep their percentage. | Larger checks, funds, investors who expect to follow on. |
Cap and Discount (in the user guide, not on the current download list) | Converts using whichever of the cap or the discount gives the investor the better price. | Investors who ask for "both". Check carefully that the rest of the text is still standard. |
There is no separate uncapped SAFE form; YC says to use the discount form with the Discount Rate at 100% (no discount). YC also publishes cap versions for Canada, Cayman Islands and Singapore companies, to be used with a local lawyer.
Meet the running example (made up)
Sorrelbook is a fictional booking tool for small physiotherapy clinics: two founders, a Delaware C-corp, a few paying clinics. Over three months they are offered three SAFE checks:
Ottilie, a former clinic owner and angel: $100,000 on a $4 million post-money cap.
Rafe, an operator angel in health tech: $200,000 on a $5 million post-money cap.
Halyard Seed, a small fund: $300,000 on an $8 million post-money cap, and they want a pro rata side letter.
All invented. The numbers make the math easy to follow; they are not a guide to what caps are normal.
How do valuation cap vs discount actually work?
The valuation cap
The cap is the highest valuation at which the SAFE converts. If your priced round values the company above the cap, the SAFE investor converts as if the company were worth the cap. That is their reward for coming in early.
On a post-money SAFE, the ownership sold is the check divided by the cap. YC's own example: targeting $1 million at 15% means a cap of about $6.7 million, and $500,000 on that cap is about 7.5%. For Sorrelbook:
Ottilie: $100,000 / $4,000,000 = 2.5%
Rafe: $200,000 / $5,000,000 = 4%
Halyard Seed: $300,000 / $8,000,000 = 3.75%
No unknown variables, no waiting for the seed round to learn what you sold. That is the main reason the post-money SAFE exists.
The discount
A discount SAFE converts at a lower price per share than the new investors pay. In the YC form, the Discount Rate is written as 100 minus the discount, so a 20% discount is a Discount Rate of 80%. If that wording ever looks backwards in a draft you are sent, ask about it.
Made-up example: Sorrelbook later raises a priced seed round at $1.00 per share. A $50,000 discount SAFE with a 20% discount converts at $0.80 per share, so the investor gets 62,500 shares. A new investor putting in the same $50,000 gets 50,000 shares.
When a SAFE has both
With a cap and a discount, the investor gets whichever price is lower. Say the cap works out to $0.50 per share. (The real formula divides the cap by a defined share count called Company Capitalization, which includes the SAFEs themselves; your lawyer or cap table tool runs it.)
Seed priced at $1.00: discount price is $0.80, cap price is $0.50. The cap wins. $50,000 buys 100,000 shares.
Seed priced at $0.55: discount price is $0.44, cap price is $0.50. The discount wins. $50,000 buys about 113,636 shares.
A discount mostly matters if your next round lands near or below the cap. Otherwise the cap is the number you are really negotiating.
Why does a post-money SAFE change your dilution math?
The cap on a post-money SAFE is "post" all the money raised on SAFEs. In practice, that means SAFE holders do not dilute each other before the priced round. The founders absorb every SAFE you stack. YC's comparison page puts it bluntly: five $100,000 SAFEs at a $5 million cap is 10% sold, not 2%.
Here is Sorrelbook after all three checks, assuming the founders own 100% and there is no option pool yet:
SAFE (made up) | Amount | Post-money cap | Ownership sold | Running total sold | Founders left before seed |
|---|---|---|---|---|---|
Ottilie | $100,000 | $4,000,000 | 2.5% | 2.5% | 97.5% |
Rafe | $200,000 | $5,000,000 | 4% | 6.5% | 93.5% |
Halyard Seed | $300,000 | $8,000,000 | 3.75% | 10.25% | 89.75% |
$600,000 raised, 10.25% sold: a blended cap of about $5.85 million, not $8 million. Track the running total, not the latest cap.
Under the older pre-money SAFE, SAFEs diluted each other and the final percentage depended on things you did not know yet, like the next option pool. YC says mixing the two creates cap table uncertainty. If someone sends you a pre-money SAFE in 2026, ask why.
What happens at the priced round
The SAFEs are not diluted by each other, but they are diluted by the priced round. According to the YC post-money SAFE user guide, the cap is "post" any options and option pool that exist before the priced round, but not "post" the new or bigger option pool created as part of that round. So SAFE holders and founders share the dilution from new money and the new pool.
Made-up seed for Sorrelbook: new investors end up with 20% after the round, and the round creates an unissued option pool equal to 10% after the round. Everyone who was there before shares the remaining 70%:
Holder | Before seed | After seed (x 0.70) |
|---|---|---|
Founders | 89.75% | 62.825% |
All three SAFE holders | 10.25% | 7.175% |
New seed investors | 0% | 20% |
New option pool | 0% | 10% |
Real rounds are messier. Halyard Seed's pro rata letter lets them buy into the seed to keep their share, and a real term sheet may define the pre-money differently. The YC user guide has a worked pro rata example. The habit that matters: before you sign the next SAFE, know what the founders hold after the round you are raising toward.
Which clauses should you actually read?
The YC SAFE is short. Read all of it once, then check these parts on every SAFE:
The "unmodified form" line. The template states neither party changed the YC form except to fill in blanks and brackets. If that line is gone, something was changed.
MFN provision (uncapped MFN form only). If you later issue a SAFE with better terms, this investor can adopt them. Per YC, they take the later SAFE's terms as a package, not the best bits of several, and the date that counts is the later of signing or receiving the wire.
Pro rata side letter. Lives outside the SAFE and applies to the round where it converts.
Conversion triggers. Equity Financing (converts automatically, no minimum round size in the post-money SAFE), Liquidity Event (in the cap SAFE, the greater of their money back or what they would get as converted), Dissolution Event (their money back, behind debts).
Company Capitalization. The share count used to turn the cap into a price. In the standard form it includes existing options and the unissued pool, and excludes the pool increase made in the priced round.
Side letters for information rights or other asks. YC's advice: keep the SAFE unmodified and put any agreed rights in a separate side letter, and size those rights to the check.
Governing law. A bracket you fill in. Ask your lawyer what is normal for your company.
Ask or clause | Usually normal | Red flag, slow down |
|---|---|---|
Valuation cap | One number, matches your email | Cap changed in the document but not in conversation |
Discount | Around 10 to 20% | Very high discount with no cap, sold as "founder friendly" |
Pro rata | Side letter for a meaningful check | Every $10,000 check wants pro rata |
Information rights | Light updates in a side letter | Monthly financial statements and approvals for a small check |
Governance | None in the SAFE | Board seat, vetoes or a say in hiring for a SAFE check |
Interest or maturity | None | Any interest rate or repayment date. That is a convertible note, not a SAFE. |
The form itself | Unmodified YC template | "Just a few small edits" in a Word file with tracked changes turned off |
SAFE vs convertible note vs priced round: what's the difference?
YC keeps a comparison of the SAFE, convertible note and priced round. The short version, in its terms:
SAFE | Convertible note | Priced round | |
|---|---|---|---|
What it is | Convertible security | Debt that converts to equity | Shares sold now |
Interest | None | Accrues | None |
Maturity date | None | Yes, can force repayment or conversion | Not applicable |
Price per share set now | No, cap or discount | No | Yes |
Legal cost and speed | Lowest, fastest | Moderate | Highest, slowest |
If the company is sold or shut down | Behind debt, alongside preferred stock | Debt, paid first | Preferred stock has liquidation priority |
YC advises against mixing notes and SAFEs, since notes are debt and sit ahead of SAFE holders. Pick one instrument for early money.
What should you do before you sign?
Model your cap table in a spreadsheet. Columns: holder, instrument, amount, cap, discount, MFN, pro rata, ownership sold (amount / cap), running total sold, founders left. Add a tab with one or two priced round scenarios: new money percentage, new pool size, everyone after.
Keep a SAFE tracker. One row per SAFE, filled the day it happens (see below).
Use the unmodified standard form. Fill in the blanks. Put anything extra in a side letter, and only if you agree to it.
Get board approval. YC notes the board must approve issuing SAFEs, usually a short written consent.
Check the investor is accredited. YC says SAFE investors should be accredited. Ask, and note the answer.
Sign, then confirm the wire. YC says a SAFE is not binding until the money is received.
File the countersigned copy. One folder, PDF named by date and investor, plus the side letter if any.
Tell your lawyer and accountant. Your lawyer sees every SAFE; your accountant needs to know the money is an investment, not revenue.
Investor | Amount | Form | Cap | Discount | MFN | Pro rata letter | Date signed | Wire received |
|---|---|---|---|---|---|---|---|---|
Ottilie (made up) | $100,000 | Cap | $4M | None | No | No | Day 1 | Day 3 |
Rafe (made up) | $200,000 | Cap | $5M | None | No | No | Day 30 | Day 31 |
Halyard Seed (made up) | $300,000 | Cap | $8M | None | No | Yes | Day 85 | Pending |
SAFEs are mainly a US instrument built around a Delaware C-corp. Outside the US, check local equivalents with a lawyer where your company is formed. Once investors wire, the habits from writing founder updates people actually read work for investor updates too: short, honest, numbers first.
What traps catch first-time founders?
Many caps, no tracker. Five checks on four caps, and the founders find out the total at the seed round.
Treating SAFE money as non-dilutive. It is dilution with a delay. Count it the day you sign.
Promising pro rata to everyone. Every letter is a claim on your next round that a lead may want for themselves. YC's own line: a $500,000 investor has a better case for pro rata than a $10,000 one.
The "high cap = win" trap. A cap well above your traction feels great but sets an expectation for the priced round. If the seed comes in lower, it gets awkward.
MFN in the wrong order. Sign an uncapped MFN, then a low-cap SAFE, and the MFN investor can take that low cap. YC suggests closing your lower-cap SAFEs (fully wired) before issuing an uncapped MFN.
Side deals by email. "We'll give you a board observer seat later" is a promise someone will remember. If agreed, it goes in a side letter your lawyer has seen.
If you are weighing an accelerator check instead of, or as well as, angel SAFEs, the deal terms are a SAFE too. We covered how to compare programs in applying to a startup accelerator as a first-time founder.
A 7-day before-you-sign plan
Day | Do this | Done when |
|---|---|---|
1 | Read the YC SAFE page and the user guide summary | You can explain cap, discount and MFN to a friend |
2 | Build the cap table sheet with every SAFE signed or offered | Running total sold is on screen |
3 | Add one or two priced round scenarios | You know what founders hold after the next round |
4 | Compare the draft SAFE to the YC template | Only blanks and brackets differ |
5 | Decide on side letters (pro rata, information rights) | A yes or no for each, sized to the check |
6 | One hour with a startup lawyer | Board consent drafted, questions answered |
7 | Sign, confirm the wire, file the countersigned copy, update the tracker | Money received, PDF filed, row complete |
FAQ
Is a SAFE debt?
No. Per YC, a SAFE has no interest and no maturity date, and it is not stock until it converts. If a document has an interest rate or a repayment date, it is a convertible note, whatever the file name says.
What happens to a SAFE if the startup shuts down?
A shutdown is a Dissolution Event. In the valuation cap SAFE, the investor is entitled to their purchase amount back, ranked behind debts and creditors and ahead of common stock. If nothing is left after debts, there is nothing to pay. Talk to a lawyer before winding down, not after.
Post-money or pre-money SAFE?
Post-money, almost always. It has been the YC standard since 2018 and shows exactly what you sold. YC calls pre-money SAFEs legacy.
Can I negotiate a SAFE?
Yes, but negotiate the numbers, not the document. YC says the cap is usually the only term to negotiate. Push back on side letter asks that do not fit the check size. Not legal advice: have a startup lawyer look before you sign.
Your first SAFE is easier to raise when investors can see real people using what you built. If you have not yet, launch on EarlyHunt and give the next angel some early traction to look at.