SAFEs and convertible notes

What a SAFE actually is, how it differs from the convertible note it replaced, and a calculator that applies Y Combinator’s own conversion rules to your numbers. Open to everyone; your own register lives in the cap table.

The SAFE — Simple Agreement for Future Equity — was created at Y Combinator by Carolynn Levy in 2013, as a replacement for the convertible note in seed rounds. The post-money SAFE has been the YC standard since 2018, and YC states that SAFEs have been used to raise over $15B for its portfolio companies.1

The four documents

Three forms and a side letter. The differences are small on the page and large on the cap table.

Valuation cap

The investor's money converts at a price set by a cap on the company's valuation. On a post-money SAFE the arithmetic is deliberately simple: ownership sold equals the amount raised divided by the post-money cap. YC's own example is $1M on a $6.7M post-money cap — about 15%.1

Discount

No cap. The investor converts at a stated discount to the price the next priced round pays. An uncapped SAFE is made by setting the discount rate to 100% on this form — which is to say, no discount at all.1

Uncapped MFN

Neither a cap nor a discount of its own. Most Favoured Nation: if the company later issues a SAFE on better terms, this one takes those terms. The cheapest instrument to agree and the hardest to value at the time you sign it.1

Pro rata side letter

The right to keep your percentage by investing again in the next round. It is a separate document, not a clause in the SAFE — worth knowing, because investors often assume it is included.1

Pre-money and post-money

The single change that made the instrument predictable for founders.

Post-money — the standard

Post-money SAFE (the standard since 2018). The cap is the valuation after all SAFE money is counted, so the investor's percentage is known the moment they sign: investment ÷ cap. Stacked post-money SAFEs are additive — a second SAFE does not dilute the first; it dilutes the founders.

Pre-money — the original

Pre-money SAFE (the original 2013 form). The cap is a pre-money valuation, so every later SAFE changes what the earlier ones convert into, and nobody knows their percentage until the round prices. The same valuation, measured at a different moment — and the reason the founder's dilution was so often a surprise.

Both describe the same valuation at different moments.1

SAFE versus convertible note

The note came first and the SAFE was written to replace it. Where they differ is mostly one thing — the maturity date — and everything that follows from it.

	SAFE	Convertible note	Why it matters
What it legally is	Not debt. A contractual right to shares in the future.	Debt. A loan to the company that converts to shares instead of being repaid — if things go to plan.	A note sits on the balance sheet as a liability and can, in principle, be called. A SAFE cannot.
Interest	None.	Usually accrues, commonly quoted in the low-to-mid single digits. Treat any specific rate as negotiable rather than standard.	Interest increases the number of shares the note converts into, so a long gap to the priced round quietly costs the founder more equity.
Maturity date	None. It waits indefinitely for a priced round.	Usually set 18–24 months out by convention.	This is the real difference. At maturity the company must repay, convert or renegotiate — which hands the investor a pressure point at the worst possible moment.
If you never raise a priced round	Nothing happens. It sits there until a priced round, an acquisition or a shutdown.	The maturity date arrives and must be dealt with. An unpaid note at maturity is a default, whatever the relationship.	Most seed companies do not raise exactly on schedule. A SAFE tolerates that; a note makes it a negotiation.
Ranking if the company fails	Below debt, and like non-participating preferred stock on a dissolution.	Debt ranks ahead of all equity.	On a shutdown, noteholders are creditors and SAFE holders are near the back of the queue.
Paperwork and cost	A standard form, five pages, usually signed without negotiation.	A note plus a purchase agreement, more often negotiated, with legal costs to match.	At a $50k cheque the legal cost of a negotiated note is a visible fraction of the raise.
What the investor gets in exchange	Speed and simplicity, and no creditor protection.	Interest, a maturity date and a creditor's position — real leverage if the company stalls.	An investor who insists on a note is usually buying the maturity date, not the interest.
Pro rata rights	Not included. A separate side letter.	Often written into the note or its purchase agreement.	Ask explicitly either way; it is the term most often assumed and least often read.

The SAFE column is Y Combinator’s own description of the instrument it wrote.1 The convertible-note column is the general market convention rather than a standard: interest rates, maturities and ranking are all negotiable, and the ranges quoted are what is commonly seen rather than what is required.4

Which one, and when

Reach for a SAFE

Nearly all US seed and pre-seed raising now, and increasingly elsewhere. Reach for a SAFE when the round is small, the investors are angels or seed funds who have seen one before, and you want the money in the bank this month.

A note still makes sense

A note still makes sense where the investor requires creditor status, where local law makes equity-linked instruments awkward, where there is a bridge to a known event with a date attached, or where a lender rather than an equity investor is on the other side.

If you are Canadian

A note on Canada: YC publishes valuation-cap SAFEs and pro rata side letters for companies formed in Canada, the Cayman Islands and Singapore, and tells you to consult local counsel — which is the right instruction. Corporate law, securities exemptions and tax treatment differ, and a US form signed by a Canadian corporation is not automatically the same instrument.1

The calculator

Your SAFEs, and what they convert into. It applies the rules Y Combinator publishes for the post-money SAFE — they are listed under the calculator so you can check the output against the source.

Before the round

Founders’ and issued shares Everything already issued, including options actually granted. Unissued option pool (%) Only the unallocated part. Granted options belong above, with the founders.

SAFEs

Model a priced round — optional

Model a Series A

Cap table today

The rules it applies

Ownership sold on a post-money SAFE is the investment divided by the post-money cap.
Stacked post-money SAFEs are additive. A second SAFE dilutes the founders, not the first SAFE.
The SAFE price is the post-money cap divided by the company capitalisation — outstanding stock, the existing option pool and the other SAFEs — and it excludes the new money and any new or increased pool created for the round.
At conversion, a capped SAFE takes the better of its SAFE price and the new-money price. If the round prices above the cap, the cap binds; below it, the SAFE simply converts at the round price.
A discount SAFE converts at its discount to the new-money price.
An MFN SAFE has no terms of its own, so here it takes the best price any other SAFE in the round achieves, and the round price if there is none.
The new money and any new or increased option pool dilute the founders and the SAFE holders. The new investors are not diluted by the pool.
Raising your entire post-money cap sells the whole company.

These are Y Combinator’s published rules for the post-money SAFE.2 The arithmetic here is our own implementation of them — check it against their calculator before you rely on a number.

Sources

1. SAFE financing documents — the instrument, the three US forms, the pro rata side letter and the user guide — Y CombinatorA · 2026-10-27
2. SAFE calculator — the conversion rules this page's calculator reproduces — Y CombinatorA · 2026-10-27
3. SAFEs explained — CartaB · 2026-10-27
4. Part Owner reading of the general market convention on convertible notes — interest, maturity and ranking. Ranges are conventions, not standards, and every one of them is negotiable — Part OwnerC · 2026-10-27

This is a model, not advice. It is not legal, tax or investment advice, and it does not know what is in your own documents — side letters, existing preferences, anti-dilution terms and local law all change the answer. Your corporate share register and your signed agreements are the legal record. Have a lawyer read any instrument before you sign it, and in Canada have one who knows the local securities exemptions.