Last reviewed against Y Combinator's post-money SAFE (version 1.2).
How does a post-money SAFE convert in a priced round?
When a company closes a priced round (Y Combinator's SAFE calls it an Equity Financing), every outstanding SAFE converts automatically. Under Section 1(a) of YC's post-money SAFE, the holder receives the greater of two share counts:
- the purchase amount divided by the price per share the new investors pay, or
- the purchase amount divided by the Safe Price, which is the post-money valuation cap divided by the Company Capitalization.
A SAFE with a discount adds a third candidate, the round price reduced by the discount. More shares always means a lower conversion price, so the calculator shows all of the prices and picks the lowest one for each SAFE.
What counts in the Company Capitalization?
The SAFE defines Company Capitalization as of immediately before the round, on an as-converted basis and without double-counting. It includes:
- all issued and outstanding shares;
- all Converting Securities, meaning this SAFE, every other SAFE and any convertible notes;
- all issued and outstanding options, plus Promised Options;
- the Unissued Option Pool.
It leaves out the new investors' money and any increase to the option pool adopted in the round. The one exception is that a pool increase counts to the extent the promised options exceed the existing unissued pool. YC's user guide puts it this way: the cap is "post" all of the SAFE money and the existing pool, but not "post" the round's money or its new pool.
Why does SAFE ownership equal the investment divided by the post-money cap?
Because every SAFE sits inside the Company Capitalization, a SAFE that converts at its cap gets exactly purchase amount ÷ post-money cap of it: $500,000 on a $5 million cap is 10%. Each SAFE's ownership is fixed and doesn't change as more SAFEs are sold. The SAFEs don't dilute each other; the founders and the existing pool take all of that dilution.
The definition is circular, since the capitalization includes the SAFEs' own shares. The algebra is simple, though. In YC's Example 1, the company has 10,000,000 fully diluted shares, and its two SAFEs ($200,000 at a $4 million cap and $800,000 at an $8 million cap) buy 5% and 10%. So:
Company Capitalization = 10,000,000 ÷ (1 − 15%) = 11,764,705 shares
Investor A receives 588,235 shares and Investor B receives 1,176,470. Those are the calculator's default results.
When does a SAFE convert at the round price instead of its cap?
When the round is priced close to or below a SAFE's cap, the new investors' price can be lower than the Safe Price. The holder then converts at the round price, receives more shares, and owns more than amount ÷ cap. In YC's Example 1, question 5, the company raises a $2.2 million seed at an $8.8 million pre-money. Investor B's $8 million cap gives a Safe Price of about $0.68, but the seed price is $0.6577. B therefore converts at $0.6577, into 1,216,360 shares and 10.30% instead of 10%. Investor A still converts at its cap.
A SAFE that converts at a price, rather than at its cap, adds a fixed number of shares to the Company Capitalization. The round price depends on that total in turn, so the calculator solves the two together. It settles in a few passes.
How does the option pool increase dilute founders and SAFE holders?
In YC's examples, the round's pre-money valuation includes the SAFE conversion shares and the new pool. So the price per share is:
round price = pre-money ÷ (fully diluted shares after the SAFEs convert + new pool shares)
That is how YC gets $15,000,000 ÷ (11,764,705 + 1,695,000) = $1.1144 in Example 1. Because the new pool comes out of the pre-money, everyone who held shares before the round bears it, SAFE holders included. The guide says this is deliberate: the SAFE money paid for one round of hiring, and the round's money pays for the next. You can enter the increase as a share count, as YC does, or as a target available pool. With a 10% target, the calculator solves for the share count that leaves 10% of the post-round company unissued.
How do discount and MFN SAFEs work here?
A discount SAFE converts at the round price times (1 − discount). A 20% discount on a $1.00 round price is $0.80. YC publishes a discount-only version, with no cap. It stopped publishing the combined cap-and-discount post-money SAFE in version 1.1 of the user guide (August 2021), but founders still sign them. For those, the calculator uses whichever price is lower.
An MFN SAFE has no cap and no discount. If the company later issues SAFEs on better terms, the holder may amend its SAFE to match one of them. The guide notes the MFN doesn't allow "cherry-picking": the amended SAFE copies one later SAFE's terms whole. The calculator treats the list order as issue order, and lets an MFN SAFE adopt the most favorable later SAFE. An MFN SAFE that adopts nothing converts at the round price.
What does this calculator simplify?
It models post-money SAFEs converting in one priced round, and nothing else. It does not model pre-money SAFEs, convertible notes, pro rata side letters (Investor B's pro rata purchase in YC's example isn't included), the promised-options carve-out from the pool increase, liquidity or dissolution events, or anything in your term sheet that departs from YC's form. Share counts are rounded down and the round price is rounded to four decimals, as in YC's tables. YC's own tables round a few percentages so each column totals 100%, so they can differ from ours in the last digit.
How do you record the conversion in your books?
The cap-table result is only half the job. If your SAFEs are liability-classified, they're remeasured to fair value up to the conversion date and then reclassified into equity, and a strong round can produce a large non-cash loss. Our guide to how to account for a SAFE walks through the entries. ClearBooks' cap table and equity tools keep every SAFE's cap, discount, status and signed agreement next to your ledger. When the round closes and you start hiring, payroll runs from the same books.
Frequently asked questions
Do post-money SAFEs dilute each other?
No. Each post-money SAFE that converts at its cap owns its purchase amount divided by its post-money cap of the Company Capitalization, whatever other SAFEs are sold. Selling more SAFEs dilutes the founders and the existing option pool, not the earlier SAFE holders.
Is a SAFE diluted by the priced round?
Yes. The post-money cap is post the SAFE money only. The new investors' shares and the option pool increase adopted in the round dilute SAFE holders along with everyone else, unless a holder buys more in the round under a pro rata right.
What if the priced round's valuation is below the SAFE's cap?
The SAFE converts at the new investors' price per share instead, because that gives the holder more shares. Its ownership is then higher than purchase amount divided by cap, as with Investor B in Y Combinator's Example 1, question 5 (10.30% instead of 10%).
Can a SAFE have both a valuation cap and a discount?
Yes, by negotiation. Y Combinator stopped publishing a combined post-money version in 2021 and now offers cap-only, discount-only and MFN-only forms. When a SAFE has both, it converts at whichever of the cap price and the discount price is lower.
What happens to a SAFE if the company is acquired before a priced round?
Under YC's form, the holder receives the greater of its purchase amount or the proceeds on its purchase amount divided by the Liquidity Price. The Liquidity Price is the cap divided by a capitalization that excludes the unissued option pool. This calculator models only conversion in a priced round.
Is this calculator legal or tax advice?
No. It's an educational model of Y Combinator's standard post-money SAFE. Your signed documents, side letters and term sheet control. Have your counsel confirm the pro forma cap table before the round closes.
Sources
- Y Combinator, Safe financing documents
- Y Combinator, Post-Money Safe User Guide (Appendix II, Example 1)
- Y Combinator, Post-Money Safe: Valuation Cap Only (Sections 1(a) and 2)
This calculator is for education and planning. It is not legal, tax or investment advice. Related reading: how to account for a SAFE, ClearBooks equity and ClearBooks payroll.