October 23, 2026
Pick your terms first: for most seed rounds, that means Y Combinator's post-money SAFE with a valuation cap, used without edits, plus a pro rata side letter for your larger investors. Have the board approve the SAFE form, the cap, the maximum amount you will raise and who can sign. Then confirm each investor is accredited, close each SAFE as its money arrives, and record every SAFE on a separate ledger in your cap table. After the round, send regular updates and remember that SAFE holders have no vote, no board seat and no information rights unless a side letter gives them one.
Key takeaways
The post-money SAFE is the market standard. Y Combinator's current US forms come in three versions: a valuation cap with no discount, a discount with no cap, and an uncapped "MFN" version with neither. Most seed rounds use the cap-only version. Its great advantage is that the ownership you sell is easy to calculate: each investor's purchase amount divided by the post-money valuation cap is the percentage it will own just before the next priced round's new money comes in.
A discount gives the investor a lower price than new investors pay in the priced round, commonly 10% to 20%. The current YC set offers a discount-only form, and some investors ask for both a cap and a discount. Combining them means using a modified form, so think carefully before agreeing: a cap alone is usually enough protection for the investor. See Valuation Cap.
MFN ("most favored nation") lets an investor adopt better terms you later give another SAFE investor. Use the MFN form only for an uncapped SAFE, typically for a very early check before you have set a price. Don't add an MFN to a capped SAFE.
The pro rata side letter gives an investor the right to buy its proportionate share of the next priced round. YC publishes a standard version. Offer it to investors writing meaningful checks, not to everyone. See Pro Rata Rights.
Use the YC forms as published. The current 2023 YC forms are familiar to investors and to every lawyer who will diligence your company, and edits create questions at the next round. Fill in the blanks, and put anything negotiated into a side letter.
Start with how much you need and how much of the company you are willing to sell, then derive the cap. If you need $1,500,000 and are willing to sell 12.5%, the post-money cap is $12,000,000 ($1,500,000 ÷ 12.5%). Then test that number against what investors will accept for a company at your stage. If they won't accept it, you either raise less, sell more or change the story.
You can raise at more than one cap. Early investors who take more risk often get a lower cap than later ones in the same round. Each SAFE's ownership is still its own purchase amount divided by its own cap, so you can track the total you have sold as you go. See SAFE vs Convertible Note vs Priced Round.
Before the first SAFE is signed, the board should adopt a written consent that approves the form of SAFE and any side letter, the valuation cap or caps, the maximum total amount the company may raise on those terms, and the officers authorized to sign. A maximum amount protects you from the board later finding it never approved half the round. If the round grows, the board approves an increase. The consent should also note that the company will reserve enough shares for the SAFEs to convert, which may mean increasing authorized shares before the priced round. See Startup Board Consent.
SAFEs are securities, so every sale needs an exemption from registration, and the exemptions startups rely on work best when every investor is an accredited investor. Have each investor complete a short accredited investor questionnaire before you accept money. Selling to non-accredited investors is possible in limited numbers, up to 35 in any 90-day period under the usual exemption, but each must be financially sophisticated and must receive disclosure that includes financial statement information. For most early-stage companies, that disclosure costs more than the check is worth. Don't advertise the round publicly unless you've chosen an exemption that allows it. See Can Our Startup Raise Money from People Who Are Not Accredited Investors? and What Do I Tell Friends and Family Who Want to Invest?
SAFE rounds close on a rolling basis. There is no single closing date: each SAFE is a separate agreement that becomes effective when it is signed and funded. That lets you take money as soon as an investor commits, which is one reason SAFE rounds move faster than priced rounds. See Can You Have Multiple Closings in a Startup Funding Round?
The mechanics are simple. Send the SAFE and any side letter for e-signature with the investor's name, purchase amount and date filled in. When the investor signs, send wire instructions by phone or through a verified channel, because wire fraud targeting fundraises is common. Once the money lands, the authorized officer countersigns, and you send the investor a fully signed copy and a short confirmation of receipt. Don't countersign before the money arrives.
Keep SAFEs on a separate tab of the cap table, not mixed in with issued stock. Record the SAFE date, the purchase amount, the post-money valuation cap, any discount, and whether the investor has a pro rata side letter. Don't show SAFE holders as owning a percentage at the cap. That percentage applies only right before the next round's new money and is then diluted by the new money and any pool increase, so showing it as current ownership overstates the SAFE holders' position. SAFEs don't count toward fully diluted shares until they convert. If you are already on Carta, it handles a SAFE ledger well. See What Is a Cap Table?
Pro rata rights for larger investors are normal. Be cautious with anything else. Decline board seats or observer rights for SAFE holders, vetoes over company decisions, information rights beyond the updates you'd send everyone anyway, guaranteed "major investor" status in the next round, super pro rata rights and MFN rights on a capped SAFE. Each one makes your next round harder to negotiate and may need to be waived. The current forms also clarify that side letters that don't amend the SAFE itself don't trigger another investor's MFN, but changing the SAFE's own terms for one investor can, so keep economics out of side letters.
Send a closing note to all investors and set a regular update schedule; see How Do I Update Investors in My Startup? SAFE holders don't vote, don't sit on the board and have no right to information unless a side letter gives it to them, but they are your earliest supporters and the investors most likely to write follow-on checks.
A SAFE round doesn't automatically require a new 409A valuation, but the appraiser will take it into account, and a capped round can affect the value of your common stock. Tell your appraiser about the round before your next option grants.
Example. A company with 9,000,000 fully diluted shares raises $1,500,000 on post-money SAFEs at a $12,000,000 cap. An angel fund signs and wires $750,000 on March 3, five angels each wire $100,000 over the next three weeks, and a seed fund closes $250,000 on April 2. The SAFE ledger shows seven entries totalling $1,500,000. When the company later raises a priced round, each SAFE's ownership right before the new money is its purchase amount divided by $12,000,000: 6.25% for the angel fund, about 0.83% for each $100,000 angel and about 2.08% for the seed fund, or 12.5% combined ($1,500,000 ÷ $12,000,000). The 12.5% is measured against the company's capitalization right before the round, which includes the SAFE shares themselves, so the SAFEs convert into about 1,285,714 shares (9,000,000 ÷ 87.5% × 12.5%). The new money and any pool increase in the priced round then dilute everyone, the SAFE holders included. See How Do SAFEs Convert in a Priced Round?
To go deeper, read our Founder Guide: SAFE.
For more, see SAFE, Valuation Cap, SAFE vs Convertible Note vs Priced Round and How Do I Update Investors in My Startup?
If you're planning a SAFE round, contact us before you send the first SAFE.
