A SAFE is neither debt nor equity until something happens. That "something" is usually your next priced round — and the conversion math is where the cap and discount actually matter.
Reading time: 8 minutes. Covers priced-round, liquidity, and dissolution triggers with worked numbers.
A SAFE (Simple Agreement for Future Equity) is a contract to issue shares later, not today. Until a conversion trigger happens, the investor has no shares, no board seat from the SAFE itself, and no debt claim in the standard YC form. You have cash and a future cap-table obligation.
The main trigger is an equity financing — almost always your next priced round (Seed, Series A) where you sell preferred stock at a fixed per-share price. Secondary triggers on the standard YC SAFE include a liquidity event (acquisition or IPO) and dissolution (company shuts down without a priced round).
Neither debt nor equity is a feature, not a bug: it keeps the signing fast and cheap. The cost shows up later, when those future shares are calculated.
Priced-round conversion: compute two prices — (1) round price × (1 − discount), and (2) cap-implied price from the post-money or pre-money formula in your doc. Investor gets shares = SAFE amount ÷ lower price. Post-money SAFEs also lock ownership % at signing; conversion formalises those shares into the cap table.
Liquidity event (acquisition/IPO before priced round): standard YC SAFEs pay the investor either a cash amount tied to the cap formula or a return of purchase amount (template-dependent). Read your specific version — bespoke M&A language is where founders get surprised.
Dissolution: if the company winds up without a priced round or sale, investors typically receive their money back before any cap-based conversion — check whether your form pays purchase amount only or includes a cap-linked component.
Order matters: SAFEs convert into the priced round, increasing fully diluted share count before new money hits. Model conversion before you model the new investor's % — most cap table mistakes are sequencing mistakes.
An investor signs a $250,000 post-money SAFE with a $5M post-money cap and no discount. Eighteen months later you raise Series A at $20M post-money ($2.00/share if there are 10M shares).
At signing: fixed ownership = $250k ÷ $5M = 5%.
At Series A conversion: round price ($2.00) is far above the cap-implied economics, so the investor converts at the cap: 5% of the company = 500,000 shares at the $2.00 price — $1M paper value for $250k invested. Series A investors still pay $2.00; the SAFE holder got in at an effective $0.50/share.
Contrast — discount-only SAFE, 20%, no cap: same round converts at $2.00 × 0.80 = $1.60/share → 156,250 shares (1.56% on 10M FD). The cap SAFE wins dramatically in an up-round; the discount-only SAFE is the cheaper dilution for you — if you actually get the up-round.
Labelled illustrative: real share counts depend on your option pool, other SAFEs, and round structure. The directional lesson holds — cap dominates in up-rounds.
Use your target Series A post-money and share count. If the cap path gives away >10% per €1M SAFE stack, you will feel it at the term sheet. Fix the cap now, not in the data room.
Acquisition conversations start fast. Know whether SAFE holders get cash-out, conversion, or pro-rata proceeds. Non-standard M&A language is a common late-stage fight.
In the model: existing SAFEs convert → option pool top-up (if any) → new investors buy preferred. Skipping steps double-counts dilution or understates the lead's slice.
Post-money v1.1 vs pre-money 2013 changes triggers and definitions. Prism flags drift from standard conversion mechanics — you should still read the trigger definitions yourself.
Prism reads the SAFE and pulls conversion triggers (equity financing, liquidity, dissolution), cap and discount terms, and any non-standard modifications to the YC conversion language. It compares them to your playbook — acceptable trigger definitions, required "better of cap or discount" wording, and flags on bespoke M&A payouts.
You get categorised findings (low / medium / high), sector market context, and redlines you can send back to counsel or the investor. If the doc quietly changes the dissolution waterfall, that is a finding even when the cap looks fine.
V1 scope: single-document extraction, playbook comparison, findings, and redlines — the review you need before signing, not a full cap-table simulator across every instrument in your data room.
Closed alpha. Premium tier — €49/month, no free tier, no demos. Read the home page if you haven't, then drop your email.
Valuation cap, in plain English — the single number that decides how much of the company you keep when the SAFE converts.
Post-money vs pre-money SAFE — why the 2018 post-money default quietly costs you more dilution when stacking SAFEs.
Priced round vs SAFE or note — when to stop using instruments and just price the round.
If there's a term you're trying to understand right now and it's not here, tell us — the order we write these in is driven by what founders ask for.
