SAFE
A SAFE is money an investor gives you now in exchange for shares later, at a price set by a future round rather than today. On a post-money SAFE, the holder's percentage is their cheque divided by the valuation cap, and it is fixed as of the moment immediately before new round money arrives.
The name says simple agreement for future equity. The part worth understanding is that you are agreeing to a percentage now and delivering it later.
The cap table we will use
| Holder | Shares | Ownership |
|---|---|---|
| Founders | 8,100,000 | 90.0% |
| Option pool | 900,000 | 10.0% |
| Total | 9,000,000 | 100.0% |
An investor signs a post-money SAFE: $600,000 at a $6,000,000 cap.
The arithmetic
$600,000 ÷ $6,000,000 = 10.00%
That is the whole calculation, and it needs no share count. The share count follows: if the holder ends with 10.00%, the existing 9,000,000 shares are the other 90.00%.
9,000,000 ÷ 0.90 = 10,000,000 shares, of which the holder receives 1,000,000, at $0.60 per share.
| Holder | Shares | Before | After |
|---|---|---|---|
| Founders | 8,100,000 | 90.0% | 81.0% |
| Option pool | 900,000 | 10.0% | 9.0% |
| SAFE holder | 1,000,000 | 10.0% | |
| Total | 9,000,000 → 10,000,000 | 100.0% | 100.0% |
The founders gave up 9.0 points and the pool gave up 1.0. On these numbers. A different cheque or a different cap moves both.
What a SAFE is not
It is not debt. There is no principal to repay, no interest accruing, and no maturity date at which anything falls due. A convertible note has all three, which is the main practical difference between them.
It is not a valuation. The cap is a number you divide by, not a statement about what the company is worth. Nobody has priced anything.
It is not diluted by later SAFEs. Once signed, a post-money SAFE holder's percentage is fixed against everything that happens before the priced round. Later SAFEs come out of the founders and the pool.
It is not free of a price. The price arrives at the priced round, and by then the percentage is already settled.
What to check in your own documents
- Post-money or pre-money? The document says which on its face, and the arithmetic on this page is for post-money.
- Divide the cheque by the cap before you sign. That percentage is the term. Everything else in the document is machinery around it.
- Add the percentages of every SAFE you have signed. The total is what you have committed before a round has priced.
- Check whether there is also a discount, because a discount is a second candidate price and only one of the two applies.
Run it on your own numbers
One SAFE is one division. Several of them, against your real cap table, with a priced round on top and the round after that, is where it stops fitting in your head.
Promythia converts each instrument against the cap table you enter. Create a free account and put your real terms in.
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