Most startups raise their first outside money before anyone has actually evaluated what the company is worth. Y Combinator (YC) created the Simple Agreement for Future Equity (SAFE) to address this problem: investors fund the company now and receive shares later, once a priced funding round sets a valuation. A YC SAFE has largely become the standard way for US startups to raise pre-seed capital because it requires one short document and little negotiation.

Below, we’ll explore what a YC SAFE involves, how the mechanics work, the main types of SAFEs, and more.

Key takeaways

• A YC SAFE is a Simple Agreement for Future Equity (SAFE) created by business Y Combinator (YC). Also known simply as a SAFE, this agreement gives an investor the right to future shares in exchange for money today. It isn’t debt, so it carries no interest or repayment deadline.

• A Simple Agreement for Future Equity (SAFE) converts into preferred shares in a priced round, and its valuation cap or discount can lower the SAFE investor’s price per share. The post-money SAFE with a valuation cap and no discount is the most common version, and it fixes each investor’s ownership at signing.

• Each Simple Agreement for Future Equity (SAFE) in a round closes on its own once it’s signed and funded. SAFE dilution appears only at conversion, so it’s generally worth modeling how each SAFE will convert before agreeing to its terms.

What is a YC SAFE?

A YC SAFE—usually just called a SAFE or sometimes a SAFE note—is a short contract an investor signs to fund a startup now in exchange for the right to shares of stock later. Carolynn Levy created the SAFE at YC in 2013 as a replacement for convertible notes, which are short-term loans designed to convert into equity. Unlike a convertible note, a SAFE has no interest rate or maturity date, so the investor can’t demand repayment by a deadline.

A SAFE is the default for early-stage fundraising because it removes most of the cost and delay from a first raise. Founders and investors work from the same publicly available SAFE agreement template and typically negotiate only one term: the valuation cap. SAFEs made up a record 90% of pre-seed rounds on Carta in the first quarter of 2025.

How does a YC SAFE work?

A YC SAFE converts an investment into shares later, at a price set by its terms rather than the price new investors pay. Until a triggering event occurs (e.g., a priced round, an acquisition), no shares change hands. Two terms set the SAFE investor’s price: the valuation cap and the discount rate.

Valuation cap

The valuation cap is the maximum company valuation at which the SAFE converts into equity. If the priced round values the company higher, the SAFE investor’s shares are priced as if the company were worth only the cap. In a post-money SAFE, ownership is roughly the investment divided by the cap. Similarly, the valuation cap is the investment amount divided by ownership.

Let’s look at a couple of examples.

Example A

An angel investor decides to put $100,000 into a SAFE with a $1 million post-money valuation cap. Under a post-money SAFE, this would convert into 10% of the company before the priced round’s new shares are issued.

This would look like:

SAFE Investment Amount ÷ Post-Money Valuation Cap = Ownership

$100,000 ÷ $1,000,000 = 0.1 = 10%

Example B

A two-person startup wants to raise $1 million from investors. If the founders are comfortable selling about 15% of the company, they can offer SAFEs with a post-money valuation cap of about $6.7 million.

The math would be:

Total SAFE Investment ÷ Ownership = Post-Money Valuation Cap

$1,000,000 ÷ 0.15 = $6,666,667

The founders would send the same SAFE to each investor and close each one as it’s signed and funded.

Discount rate

A discount lets the SAFE investor pay less per share than new investors in a priced round. With a 20% discount, the SAFE converts at 80% of the round’s price per share. Discounts matter most when the round is priced at or below the cap or when the SAFE has no cap.

Here’s how it works in practice.

Example

During a Series A round, a company’s price per share is set at $1. The investor’s SAFE has a 20% discount. YC’s SAFE defines the discount rate as 100% minus the discount, so a 20% discount means a discount rate of 80%, or 0.80.

Price Per Share × Discount Rate = SAFE Conversion Price

$1 × 0.80 = $0.80

The SAFE investor would pay just $0.80 per share during the Series A.

Note that if a SAFE has both a cap and a discount—which is uncommon—the investor gets whichever produces the lower price per share; the two don’t combine.

Conversion in a priced round

A SAFE converts into preferred shares when the company sells preferred stock in a priced round, such as a seed round.

Example

A SAFE investor initially put $250,000 into a startup. Now, during a seed round, the price per share is set at $1. Because the SAFE has a 20% discount and no valuation cap, the investor pays $0.80 per share. This would translate into the investor receiving 312,500 shares of the company.

SAFE Investment Amount ÷ SAFE Conversion Price = SAFE Shares Received

$250,000 ÷ $0.80 = 312,500

What happens if there’s no priced round?

If the company never raises a priced round, the SAFE stays outstanding because it has no maturity date. Two other events can end it:

• Liquidity event: In an acquisition or initial public offering (IPO), the SAFE investor receives the greater of their original investment or the value of their as-converted shares.

• Dissolution: If the company dissolves, the SAFE investor is entitled to their investment back. SAFE holders rank behind creditors but ahead of common stockholders, so recovery depends on what’s left.

Common caveats for founders

Two details often surprise founders:

• Pro rata rights aren’t automatic: Investors who want to invest in the next round need a separate side letter, and each one reserves part of that round.

• Dilution is deferred, not avoided: SAFEs don’t appear as shares on the business’s capitalization (cap) table until they convert, and several small SAFEs can total a large stake.

What are the different types of YC SAFEs?

YC SAFEs vary in two ways, and both affect dilution: when the valuation cap is measured and which conversion terms the SAFE includes.

Post-money vs. pre-money SAFEs

The original 2013 YC SAFE used a pre-money valuation cap. In 2018, YC introduced the post-money SAFE, which measures the cap after all SAFE money but before the priced round’s money.

• Pre-money SAFE: Ownership changes until conversion because SAFE investors dilute one another, so founders can’t easily tell how much of the company they’ve sold.

• Post-money SAFE: Each investor’s ownership is fixed at signing. SAFEs issued later dilute founders and other existing shareholders, not earlier SAFE investors.

Post-money SAFEs are the most common: 87% of SAFEs on Carta were post-money in the third quarter of 2024. Their math is additive.

Example

If there’s a $400,000 SAFE with an $8 million post-money cap and a $900,000 SAFE with a $9 million post-money cap, it means the company’s founders have given up at least 15% ownership before a priced round’s new shares are issued.

Here, the math would be:

SAFE Investment Amount ÷ Post-Money Valuation Cap = Ownership

SAFE No. 1: $400,000 ÷ $8,000,000 = 0.05 = 5%

SAFE No. 2: $900,000 ÷ $9,000,000 = 0.1 = 10%

Total sold: 5% + 10% = 15%

Cap-only, discount-only, and most favored nation (MFN) SAFEs

YC’s standard forms for US companies include a valuation cap or a discount, or neither in an uncapped MFN version. YC discontinued its cap-and-discount form in 2021, though SAFEs with both terms still appear in some deals.

Here’s how different SAFE types compare:

Generally speaking, for a first round, the post-money SAFE with a valuation cap and no discount is the practical default. Investors expect it, and it shows exactly how much of the company is being sold.

How do you run a SAFE round?

To run a SAFE round, you set your terms, get board approval, send standard documents to investors, and close each investment as it’s signed and funded.

• Set your target and cap: Decide how much seed money you need to reach your next milestone and what percentage of the company you’re willing to sell. Divide the amount by that percentage to get your post-money cap.

• Get board approval: Your board of directors must approve the SAFEs at a meeting or by written consent before the company issues any. The consent often sets a maximum amount you can raise on SAFEs.

• Prepare the documents: Download the form you need from YC’s SAFE documents page and add the company details, investment amount, and valuation cap. An unmodified template keeps legal review short because investors already know the terms.

• Confirm investor eligibility: Verify that investors are accredited, meaning they meet the US Securities and Exchange Commission (SEC) definition based on income, assets, or professional qualifications.

• Track commitments: As you pitch investors, log each one’s status: verbal commitment, SAFE sent, signed, and funded. Count an investment only once it’s signed and funded.

• Close each investment: After both parties sign, the investor wires the purchase amount, and that SAFE is complete. You’ll want to add it to your cap table right away.

• File and close the round: If the round relies on a Regulation D exemption, the company must file a Form D notice with the SEC within 15 days after the first investor is irrevocably committed to invest. Once you reach your target or the board-approved maximum, you need to stop issuing SAFEs on those terms.

How does a SAFE compare with a priced equity round?

SAFE financing is typically faster, cheaper, and simpler than a priced equity round because it postpones the valuation and uses one standard document. A priced round requires negotiating a valuation and term sheet, drafting financing documents, and closing with all investors at the same time.

Very early-stage startups often begin with SAFEs because they have little data to support a valuation. In 2025, most US early-stage rounds under $4 million used SAFEs or convertible notes. Typically, as a company gains traction and raises more, a priced round becomes the better fit, and outstanding SAFEs usually convert in that round.

How many shares does a SAFE investor get at conversion?

A SAFE investor gets shares equal to the investment divided by the conversion price. YC’s current forms use a cap or a discount, but we’ll look at a simplified example that uses both a cap and a discount to show how they interact.

Example

An investor put $500,000 into a SAFE with a $5 million post-money cap and a 20% discount. Now, the company is raising a priced round.

For the sake of the example, let’s assume the company capitalization is 10 million shares. We’ll go over two scenarios: the price being set at $1 per share or at $0.50 per share.

Scenario A: Round priced at $1 per share

First, to find the cap price—which is the price per share set by the valuation cap—the math would be:

Post-Money Valuation Cap ÷ Company Capitalization = Cap Price

$5,000,000 ÷ 10,000,000 Shares = $0.50

Next, to find the discount price, the math would be:

Round Price Per Share × Discount Rate = Discount Price

$1 × 0.80 = $0.80

Comparing the cap price to the discount price, the investor would convert at the lower of the two, which would be the $0.50 cap price:

Cap Price < Discount Price

$0.50 < $0.80

Then, the conversion price would need to be put into the following formula to find the shares the investor would receive:

SAFE Investment Amount ÷ Conversion Price = SAFE Shares Received

$500,000 ÷ $0.50 = 1,000,000

Conclusion: During a round priced at $1 per share, the SAFE investor would receive 1 million shares for that initial $500,000 investment. Meanwhile, a new investor also putting in $500,000 would only receive 500,000 shares ($500,000 Investment ÷ $1 Per Share = 500,000 Shares).

Scenario B: Round priced at $0.50 per share

In this scenario, the cap price would still be $0.50, but the discount price would change:

Round Price Per Share × Discount Rate = Discount Price

$0.50 × 0.80 = $0.40

The $0.40 discount price would now be lower than the cap price:

Discount Price < Cap Price

$0.40 < $0.50

So the investor would convert at $0.40. The math would look like:

SAFE Investment Amount ÷ Conversion Price = SAFE Shares Received

$500,000 ÷ $0.40 = 1,250,000

Conclusion: The SAFE investor would receive 1.25 million shares for their initial $500,000 investment, whereas a new investor paying the $0.50 round price would receive just 1 million shares ($500,000 Investment ÷ $0.50 Per Share = 1,000,000 Shares).

Scenario A vs. Scenario B

Here’s what Scenario A, a round priced at $1 per share, and Scenario B, a round priced at $0.50 per share, look like side-by-side:

At $1 per share, the cap would double the investor’s shares compared with a new investor paying the round price. At $0.50 per share, the round would be priced at the cap, so the discount would produce a better price.

Real SAFE conversions involve more variables, including a precisely defined share count and several SAFEs converting at once. Before agreeing to terms, it’s advisable to model each SAFE under a few valuation scenarios with your lawyer.

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FAQs about YC SAFEs