Post-Money SAFE Conversion Math: A Worked Example

Follow these steps for each SAFE. Your actual documents control, so have counsel check the definitions.

1. Find the SAFE's ownership: investment amount divided by the post-money valuation cap.
2. Compute the company capitalization used in the SAFE, which includes issued shares, outstanding options, the existing unissued pool, and all converting SAFEs and notes.
3. Calculate the cap price: post-money cap divided by company capitalization.
4. Calculate the round price the new investors pay, and any discount price if the SAFE has a discount.
5. Convert at the lower of the available prices, so the SAFE holder gets the best deal their terms allow.
6. Shares issued equal the investment divided by the conversion price.

Any increase to the option pool in the priced round is generally not part of the SAFE's capitalization, so it dilutes SAFE holders along with everyone else.

Say founders and existing option holders hold 9,000,000 shares, and you've signed two SAFEs. In this example, SAFE A is $500,000 at a $5,000,000 post-money cap, and SAFE B is $1,000,000 at a $10,000,000 post-money cap.

In this example, each SAFE owns 10 percent of the capitalization, so together they own 20 percent and the 9,000,000 existing shares are the other 80 percent. Company capitalization is 9,000,000 divided by 0.80, which is 11,250,000 shares, and each SAFE converts into 1,125,000 shares.

Now say a Series A investor puts in $4,000,000 at a $16,000,000 pre-money valuation. In this example, the pre-money share price is $16,000,000 divided by 11,250,000 shares, or about $1.42, and both SAFE cap prices ($0.44 and $0.89) are lower, so the caps apply. In this example, the new investors receive 2,812,500 shares, or 20 percent of 14,062,500 total. In this example, founders and existing holders end at 64 percent, each SAFE at 8 percent and the new investors at 20 percent.

The holder converts at whichever price is lower. Calculate the cap price and the discount price (the round price times one minus the discount), then use the smaller one. A discount tends to matter when the priced round comes in at a valuation near or below the cap. A cap tends to matter when the company has grown well beyond it.

Say your SAFE has a $10,000,000 post-money cap and a 20 percent discount, and the Series A price is $1.00 per share. If your cap works out to $0.60 per share, the cap wins, and if it works out to $0.90, the discount price of $0.80 wins. Compute both every time rather than assuming which applies.

With a pre-money SAFE, the cap applies to the company's value excluding all SAFEs, so each new SAFE you sign dilutes earlier SAFE holders and the founders in a way that's harder to predict. With a post-money SAFE, the cap includes all SAFEs, so each holder's percentage is known when they sign and the dilution lands on the founders.

That makes stacking several SAFEs easy to model but also easy to underestimate. Add up the ownership percentages of every SAFE you've signed. For example, three SAFEs at 8 percent each already give away 24 percent before your priced round, so track the total as you go. Our guide on SAFE caps versus discounts covers the comparison in more depth.

Build a small sheet with one row per SAFE showing amount, cap, discount and resulting percentage. Then add a scenario for the priced round with different pre-money valuations and pool increases, and read off founder ownership after each.

Also check what a 409A valuation and your cap table will say about option strike prices as the company moves toward a priced round. Common gaps include forgetting side letters that grant pro rata rights, missing a most-favored-nation clause that lets an earlier holder adopt better terms from a later SAFE, and treating a SAFE with no cap as if it had one. Each can change who owns what at closing.

Legal terms differ between templates and negotiated versions, so have counsel confirm how your SAFEs define capitalization and conversion. Cap table software can run the conversion from your actual documents and show the resulting cap table.