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Convertible mechanics guide
A SAFE is a promise to hand over equity later, at the best of a few terms. When your priced round finally happens, every SAFE converts — and if you haven't modeled the stack, the combined conversion is almost always more dilutive than any single SAFE looked. This guide works the exact conversion rule the report engine uses: how the cap price, discount price and round price compete, why the holder takes the lowest, how MFN fills a bare SAFE, and what a whole stack converts to together.
At the priced round, each SAFE converts at whichever gives its holder the most shares — that is, the lowest price per share among:
round price × (1 − discount). A 20% discount means the SAFE holder pays 80% of the round price.cap ÷ (fully-diluted shares before the new money). Practically, a post-money SAFE's ownership is fixed at investment ÷ cap.Whichever term wins is why the SAFE exists: the cap protects the early investor if your valuation ran up, the discount rewards them if it didn't. They get the better of the two, automatically.
A $500,000 post-money SAFE with a $6M cap and a 20% discount, converting at a round priced at $1.0691/share on a company with 8,500,000 pre-round fully-diluted shares.
Here the cap wins — the company grew enough that buying at the cap gives more shares than the discount would. If the round had priced below the cap, the discount would win instead. The SAFE holder never has to choose; they get the better outcome by construction.
This mirrors convertSafe in the report engine for a post-money SAFE: it takes the lowest of round price, discount price, and cap price (cap ÷ pre-new-money FD shares), then shares = investment ÷ that price. Ownership % here is of the pre-new-money base; your real post-round % also depends on the pool and the new money, which the full report computes. Illustrative, not legal or valuation advice.
A Most-Favored-Nation (MFN) SAFE is signed with no cap and no discount of its own, on the promise that it will inherit the best terms you grant to any later SAFE before the priced round. So if you later sign a SAFE at a $5M cap, your earlier MFN SAFE retroactively gets that $5M cap too.
SAFEs are dangerous precisely because their dilution is invisible until conversion — and then they all convert at once. Stack several at different caps and the combined conversion is larger than any single one looked:
| SAFE | Invested | Term | Converts to |
|---|---|---|---|
| Seed angel | $320K | $6M cap | 5.33% |
| Pre-seed fund | $125K | 20% discount | 2.08% |
| Strategic angel | $120K | MFN → inherits $6M cap | 2.00% |
| Combined SAFE overhang | ≈ 9.4% | ||
Illustrative figures from the report's fictional sample stack, each computed by the same conversion rule above. No single SAFE looked large; together they hand over roughly a tenth of the company before the priced round even lands.
The calculator above handles one SAFE. Your real dilution is the combined conversion of every instrument, plus the option-pool shuffle, plus the new money — the full fixed-point solve. That's what the report computes from your actual cap table, and it's the number you negotiate against. The exact math is public on the methodology page.
The $79 report converts every instrument on its best term, resolves MFN, prices the option-pool shuffle, and gives you the one number that matters: your real post-round split. Drop in your stack and it's re-derived from your numbers.
Get the report — $79 →The post-money SAFE (YC's 2018 version) is the current standard and what this guide's calculator assumes. Its ownership is fixed at investment ÷ cap and doesn't shift as you add other SAFEs — clean to model. Pre-money SAFEs price off the pre-money and dilute each other; the report engine handles both, but most stacks today are post-money.
No — the holder takes whichever single term gives the lower price, not both stacked. Cap-and-discount SAFEs exist but the holder still converts at the better of the two, never their product. This is why the rule is a min() across three prices.
Then the discount (or the plain round price for a bare SAFE) wins, because the cap price would be higher than the round price and no rational holder takes the higher price. The cap only "bites" when your valuation ran above it — which is the good case for you and the reason early investors want the cap in the first place.
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