How SAFEs Convert: A Worked Cap Table Example
SAFEs convert into shares at the first priced round. The math is simple once you see it laid out. Here are two post-money SAFEs converting in a $2 million seed round, with the cap table before and after.
How does a SAFE convert?
At the priced round, each post-money SAFE converts at the lower of the cap price and, if it has one, the discounted round price. The cap price is the cap divided by the company capitalization, which includes the converting SAFEs. Each investor’s ownership just before the round equals the investment divided by the cap. YC’s user guide has more examples (YC SAFE user guide).
| Holder | Terms | Shares |
|---|---|---|
| Founders | Common | 9,000,000 |
| Option pool | Granted and unissued | 1,000,000 |
| SAFE A | $500,000 at $8M post-money cap | Converts at seed |
| SAFE B | $500,000 at $10M post-money cap | Converts at seed |
Step 1: what do the SAFEs own before the round?
SAFE A owns $500,000 ÷ $8,000,000 = 6.25%. SAFE B owns $500,000 ÷ $10,000,000 = 5%. Together, 11.25% of the company capitalization including their own shares. The other 88.75% is the 10,000,000 founder and pool shares, so the capitalization is 10,000,000 ÷ 0.8875 = 11,267,606 shares. SAFE A converts into 704,225 shares and SAFE B into 563,380.
Their conversion prices are $8,000,000 ÷ 11,267,606 = about $0.71 for SAFE A and about $0.89 for SAFE B. Both are below the seed price, so the caps apply. The SAFE terms themselves are explained in SAFE notes explained.
Step 2: how is the seed round priced?
The seed investor puts in $2,000,000 at a $12,000,000 pre-money valuation. Pre-money shares include the converted SAFEs: 11,267,606. The price per share is $12,000,000 ÷ 11,267,606 = about $1.065. The seed investor receives $2,000,000 ÷ $1.065 = 1,877,934 shares, for 13,145,540 shares in total.
| Holder | Shares | Ownership |
|---|---|---|
| Founders | 9,000,000 | 68.5% |
| Option pool | 1,000,000 | 7.6% |
| SAFE A (now preferred) | 704,225 | 5.4% |
| SAFE B (now preferred) | 563,380 | 4.3% |
| Seed investor | 1,877,934 | 14.3% |
| Total | 13,145,540 | 100% |
What does the example show?
- SAFE holders get a better price than the seed investor: about $0.71 and $0.89 against $1.065.
- Founders went from 90% to 68.5% across the SAFEs and the seed round.
- Lower caps cost more: SAFE A’s $8M cap bought 25% more shares per dollar than SAFE B’s $10M cap.
- A pool increase in the round would dilute founders further; see dilution and funding rounds.
Know your number before you sign.
Every SAFE has a price in founder ownership. Calculate it each time, not once at the end.
How should you model your own SAFEs?
- List every SAFE with amount, cap and discount.
- Calculate each one’s ownership as investment ÷ cap.
- Model the priced round at two or three valuations.
- Include any pool increase investors will ask for.
- Check the result with your lawyer before signing the term sheet.
Then update the cap table. The raise itself is covered in how to raise a seed round.
Frequently asked questions
How do SAFEs convert into shares?
At the priced round, each SAFE converts at the lower of its cap price and its discounted round price, into the new preferred shares.
How do I calculate post-money SAFE ownership?
Divide the investment by the post-money valuation cap. A $500,000 SAFE at an $8 million cap owns 6.25% before the round.
Do SAFE investors get a better price than the priced round?
Usually, if the round is priced above their cap or they have a discount.
Do SAFEs dilute founders?
Yes. With post-money SAFEs, founders absorb the dilution from each SAFE until the priced round.
What happens if the round valuation is below the cap?
The cap doesn’t apply; the SAFE converts at the round price, or at the discount if it has one.
Do converted SAFEs get preferred shares?
Usually the same series of preferred shares as the new investors, sometimes a sub-series with a different price.
Sources & further reading
Standard documents and tax rules change. These sources let you check the current terms directly.