The difference between pre‑money and post‑money SAFEs sounds technical, but it answers a practical question. When a company raises several SAFEs before its first priced round, the form of SAFE decides who is diluted by the later ones. Under a pre‑money SAFE, everyone is diluted, including the earlier SAFE holders, while under a post‑money SAFE the earlier SAFE holders are protected and the founders carry the dilution.
This means a $5 million cap can produce quite different results depending on the form used. I use simple numbers below to show the difference, but for a real raise everything has to be brought together in one model based on the documents the company has actually signed.
Read the form and the version
The company should keep the exact signed version of every SAFE, together with any amendments and side letters, and compare each one with the published form it was based on, noting any changes to the conversion or payment terms. The model then has to use the definitions in the signed document.
The YC SAFE user guide explains the US post‑money form, which YC introduced in 2018 to replace its earlier pre‑money version, and I find it a helpful guide to the calculations. A Nigerian company issuing SAFEs still needs a document that works under Nigerian law and the right corporate approvals, and any changes made to adapt the form for Nigeria should be checked in both the legal review and the numbers, because changing a definition changes the result.
The definition of "Company Capitalization" and the related conversion definitions should be read with particular care, since they decide what goes into the share count, and changing any of them changes the conversion price.
Who carries the later SAFE money
Consider a simple pre‑money example. The founders hold 1,000,000 shares, and an investor puts in $500,000 at a $5 million cap. Ignoring options and any other securities, the cap price is $5 per share, so the SAFE converts into 100,000 shares, or about 9.09% after conversion. If the company then raises a second $500,000 SAFE on the same pre‑money terms, each investor converts into 100,000 shares and ends up with about 8.33% of 1,200,000 shares, which shows that the second SAFE diluted the first investor as well as the founders.
Under a post‑money SAFE, $500,000 at a $5 million cap means the investor owns 10% of the company immediately before the priced round money and any pool increase linked to the round. Two such SAFEs together account for 20% at that stage, and the founders keep 80%, so the first investor's 10% did not change when the second SAFE was signed. The priced round and any pool increase then dilute everyone according to the round terms.
These examples leave out options and other securities so the effect is easy to see. The company's own model has to include whatever the signed definitions count, with the assumptions written down next to the figures.
Include the options already promised
Issued shares, granted options and the unallocated pool should each be shown separately. Promised options should be included where the form counts them, and the company should check that its promises do not exceed the pool, since a grant agreed in an offer letter still matters even if the board has not yet formally approved it.
The existing pool and any new pool created for the priced round also need to be treated separately. In the YC post‑money SAFE, the existing pool is counted in the capitalisation, but a new or increased pool adopted as part of the equity financing is not, so that increase falls on the founders and other existing holders. I explain how the point of measurement decides who carries the increase in planning an option pool around hiring.
The same model should be updated before the company promises a new grant or signs another SAFE, because when the hiring plan and the fundraising plan are kept in separate spreadsheets, each one gives away ownership without anyone seeing the combined effect.
Model the round you might close
The model should test a round priced below the cap, where most SAFEs convert at the round price, or at the discounted round price, and the investor receives the shares issued in that round. Running a low‑priced round and a high‑priced round side by side shows the full range of possible outcomes.
For a SAFE with only a discount, the result depends entirely on the round price, while an uncapped SAFE with an MFN clause depends on the terms of later SAFEs it picks up. Any notice the holder must give and any exclusions should be checked, and the resulting terms added to the model as they become known.
If the company has both pre‑money and post‑money SAFEs, they should all be placed in one conversion model so that each is calculated alongside the others, together with any notes and their principal and convertible interest. I cover the other differences between these instruments in choosing between a SAFE and a convertible note.
Reconcile at completion
At completion, the final share numbers and rounding should be agreed against the investment documents. The board and shareholder approvals must cover the issue, and the register and the return of allotment filed at CAC must show what was actually completed, with the conversion schedule filed alongside the cancelled SAFEs so that the next investor can follow the figures.
If a SAFE is amended or exchanged, its amendment rules must be followed and the change in economics explained to the holders affected, with the approval and signed amendment filed with the original document.
A sale before conversion and a shutdown are governed by different provisions from an equity round, so those cases should be worked through under their own payment and priority terms, including the situation where there is not enough money for everyone. That way, founders and investors understand their position whether or not the next round takes place.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.