October 26, 2026
A post-money SAFE converts at the Safe Price, which is the post-money valuation cap divided by the Company Capitalization. Under Y Combinator's form, Company Capitalization counts all outstanding shares, outstanding options, the existing unissued pool and all converting SAFEs and notes, but not the new money shares or the pool increase made for the priced round. That makes each SAFE holder's ownership right before the new money exactly its purchase amount divided by the cap. The pool increase and the new investors' shares then dilute the SAFE holders along with everyone else, and if the round is priced below the cap, the SAFEs convert at the round price instead.
Key takeaways
Most startups use Y Combinator's post-money SAFE, version 1.2, published in 2023. When the company closes an Equity Financing, a priced round of preferred stock at a fixed valuation, a capped SAFE converts into the greater of two numbers of shares: its purchase amount divided by the round price, or its purchase amount divided by the Safe Price.
The form defines the Safe Price as the post-money valuation cap divided by the Company Capitalization. Company Capitalization is calculated as of immediately before the Equity Financing and, without double counting, includes all issued and outstanding shares, all outstanding options and promised options, and the unissued option pool. It also includes all Converting Securities, meaning this SAFE, every other SAFE and any convertible notes. An increase to the pool made in connection with the financing counts only to the extent the company has promised more options than the existing pool can cover.
What's left out matters as much as what's in. The new investors' shares are not in Company Capitalization, and neither is the pool increase the new investors require.
Because the SAFE shares themselves are in the Company Capitalization, the cap works as a true post-money valuation for the SAFE round. If the SAFEs buy 12.5% of a $12,000,000 company, then after conversion and before the new money they own 12.5% of the Company Capitalization. You solve for Company Capitalization by dividing the pre-SAFE fully diluted shares by 1 minus the SAFE percentage. Each SAFE's percentage is fixed by its own purchase amount and cap, and SAFEs don't dilute each other: raising more SAFE money dilutes the founders and other existing holders, not the earlier SAFE holders.
Example. A company has 8,000,000 shares of common stock outstanding and a 1,000,000-share option pool, so 9,000,000 fully diluted shares. It raised $1,500,000 on post-money SAFEs at a $12,000,000 cap. It now raises a $4,000,000 priced seed round at a $16,000,000 pre-money valuation, a $20,000,000 post-money, and the lead requires the option pool to equal 15% of the post-money fully diluted shares, with the increase counted in the pre-money.
Step 1: the SAFE percentage. $1,500,000 ÷ $12,000,000 = 12.5%.
Step 2: Company Capitalization and SAFE shares. The existing 9,000,000 shares are the other 87.5%, so Company Capitalization is 9,000,000 ÷ 87.5% = about 10,285,714 shares. The SAFEs convert into 12.5% of that, about 1,285,714 shares.
Step 3: the Safe Price. $12,000,000 ÷ 10,285,714 = about $1.1667 per share. Check: $1,500,000 ÷ $1.1667 = about 1,285,714 shares.
Step 4: the round price. After the round, the new investors own 20% ($4,000,000 ÷ $20,000,000) and the pool must be 15%, so the 9,285,714 shares held by the common and the SAFE holders are the remaining 65%. Total post-money shares are 9,285,714 ÷ 65% = about 14,285,714, and the price is $20,000,000 ÷ 14,285,714 = $1.40 per share. Check: the pre-money shares, 14,285,714 less the new 2,857,143, are 11,428,571, and 11,428,571 × $1.40 = $16,000,000.
Step 5: the new shares. The new investors buy $4,000,000 ÷ $1.40 = about 2,857,143 shares. The pool grows to 15% of 14,285,714, about 2,142,857 shares, an increase of about 1,142,857.
Step 6: compare. The SAFEs convert at $1.1667 against a round price of $1.40, which works out to about a 16.7% lower price. Since $1.1667 gives more shares than $1.40, the cap applies.
| Holder | Shares at conversion | % of Company Capitalization | Shares after the round | % after the round |
|---|---|---|---|---|
| Common stock | 8,000,000 | 77.8% | 8,000,000 | 56.0% |
| Option pool | 1,000,000 | 9.7% | 2,142,857 | 15.0% |
| SAFE holders | 1,285,714 | 12.5% | 1,285,714 | 9.0% |
| Seed investors | none | none | 2,857,143 | 20.0% |
| Total | 10,285,714 | 100% | 14,285,714 | 100% |
The SAFE holders own 12.5% before the round and 9.0% after it. The pool increase takes them from 12.5% to 11.25% of the pre-money shares (1,285,714 ÷ 11,428,571), and the new money takes them to 9.0% (11.25% × 80%). The common goes from 77.8% to 56.0%, carrying the same proportional dilution.
The new investors usually require the pool increase to sit in the pre-money valuation, so it dilutes only the existing holders, not them. This is the option pool shuffle; see Negotiating an Option Pool. The post-money SAFE excludes the pool increase from Company Capitalization, so the SAFE holders are existing holders for this purpose and share that dilution with the founders and employees. In the example, the increase of about 1,142,857 shares cost the SAFE holders 1.25 points of ownership before the new money came in.
Under the older pre-money SAFE, the calculation left the SAFEs themselves out and counted the new pool increase in, so a SAFE holder's percentage wasn't fixed and multiple SAFEs diluted each other. If you have older pre-money SAFEs outstanding, model them separately. See Equity Dilution.
Sometimes, and the effect is usually modest. Company Capitalization counts the unissued pool that exists just before the round, so the SAFE holders receive shares on that reserve. The increase the new lead requires in the round is left out. If part of your pool is reserved for hires you won't make before the round, cancelling those shares lowers the Company Capitalization, raises the Safe Price and reduces the SAFE holders' shares. The lead still sizes its post-money pool as it would have, so the cancelled shares come back as part of the increase, which the SAFE holders share with the founders. The reverse is also true: an increase you make on your own, well before and not in connection with the round, is counted, and the SAFE holders convert on it.
Example. In the example above, suppose 200,000 of the 1,000,000 pool shares are granted and 100,000 more are promised to new hires, leaving 700,000 that no one has been offered. Before the term sheet, the board cancels 500,000 of them. Company Capitalization becomes 8,500,000 ÷ 87.5%, about 9,714,286 shares, so the SAFEs convert into about 1,214,286 shares at about $1.2353, instead of 1,285,714 shares at $1.1667. With the same $4,000,000 at a $16,000,000 pre-money valuation and the same 15% pool, the pool increase grows to about 1,626,374 shares and the round price rises to about $1.4109. The founders finish at about 56.4% instead of 56.0%, about $86,800 more at the round price, and the SAFE holders at about 8.6% instead of 9.0%. Cancelling all 700,000 unoffered shares gets the founders to about 56.6%.
That's real but small. The gain grows with the SAFEs' share of the company: at 12.5%, each 1,000 shares cancelled removes about 143 SAFE shares. It disappears when the SAFEs convert at the round price, whether because the round is priced below the cap or because they are discount-only or uncapped MFN SAFEs.
If you do it, keep every share you've granted or promised. The SAFE adds back any increase needed to cover promised options beyond the old pool, so cutting into promised grants gains nothing. Decide while you plan the round, before the term sheet, not on the eve of closing. A cut timed to the closing and refilled by the increase can look to your SAFE holders like gaming the conversion, and SAFEs, like other contracts, carry an implied covenant of good faith and fair dealing. Cancelling reserved shares means amending the plan to reduce its share reserve, which is usually a board action, so get board approval, check your equity plan's amendment clause and any investor agreements for other consents, and tell the lead. For the negotiation side, see Negotiating an Option Pool.
A discount-only SAFE converts at the round price less the discount. With a 20% discount in the same round, there is a wrinkle: the round's $16,000,000 pre-money includes the SAFE shares, and a discount SAFE produces more shares than the capped SAFE did here, so the round price moves too. Solving for both, the round price is about $1.3906, the SAFEs convert at about $1.1125, and they receive about 1,348,315 shares, 9.375% of the post-money company. The 20% discount beats the $12,000,000 cap in this round because the cap gave only about a 16.7% lower price. In a higher-priced round, the cap would win.
A SAFE with both a cap and a discount, a modified version of the YC form, converts at whichever price gives the investor more shares: the Safe Price or the discounted round price. The investor never gets both.
An uncapped MFN SAFE has no cap and no discount. It converts at the round price, like a new investor, unless before the round the holder elects to adopt better terms the company gave a later SAFE investor, such as a cap. Under the current MFN form, version 1.3, the holder takes the later SAFE's terms as a whole, without picking and choosing, and side letters that don't amend the SAFE's terms don't trigger the MFN.
The SAFE converts at the round price, because that gives more shares than the Safe Price. In the example, suppose the $4,000,000 round came in at a $10,000,000 pre-money valuation with the same 15% pool. The round price works out to $0.80 per share, below the $1.1667 Safe Price, so the SAFE holders buy at $0.80 like the new investors and receive 1,875,000 shares, about 10.7% of the 17,500,000 post-money shares. They get no extra benefit from the cap, but they also aren't penalized.
At conversion, SAFE holders receive a sub-series of the new preferred stock, often called shadow preferred, with the same rights as the new preferred but a liquidation preference based on their own conversion price. That keeps each SAFE holder's preference equal to the amount it invested, rather than a higher amount based on the new money's price.
To go deeper, read our Founder Guide: SAFE and Founder Guide: Seed Funding.
For more, see Valuation Cap, SAFE, Negotiating an Option Pool and Equity Dilution.
If you're about to sign a term sheet with SAFEs outstanding, contact us so we can model the conversion first.
