YC SAFE Note Template: Download, Understand Every Clause, and Avoid Common Mistakes

# YC SAFE Note Template: Download, Understand Every Clause, and Avoid Common Mistakes Raising your first round of funding? There is a good chance someone has already told you to "just use a SAFE." The Simple Agreement for Future Equity, created by Y Combinator in 2013, has become the default instrument for pre-seed and seed fundraising. It is fast, cheap, and avoids the drawn-out negotiation of a priced round. But "simple" does not mean "trivial." Founders who sign SAFEs without understanding how they work often discover painful surprises at their Series A — unexpected dilution, misaligned investor expectations, or conversion mechanics that eat into the founding team's ownership far more than anticipated. This guide walks through the current YC SAFE template clause by clause, explains exactly how post-money SAFEs calculate dilution, covers the four official variants, and flags the mistakes that trip up first-time founders. --- ## What Is a SAFE Note? A SAFE — Simple Agreement for Future Equity — is not debt. It carries no interest rate, no maturity date, and no repayment obligation. Instead, it is a contract that gives an investor the right to receive equity in a future priced round, subject to the terms written into the SAFE. Y Combinator introduced the SAFE in 2013 as an alternative to convertible notes. The goal was to strip away the complexity of debt instruments — accrued interest, maturity date negotiations, extension amendments — and replace them with a clean, one-document agreement that takes minutes to sign. Since then, SAFEs have become the dominant fundraising instrument for early-stage startups. According to Carta's data, SAFEs account for the majority of seed-stage financing instruments on their platform, and the trend continues to grow year over year. --- ## Post-Money vs. Pre-Money SAFE: Why YC Made the Switch In 2018, Y Combinator released an updated version of the SAFE that changed one fundamental thing: the valuation cap is now calculated on a **post-money** basis rather than a pre-money basis. ### The Pre-Money Problem Under the original (pre-money) SAFE, the valuation cap referred to the company's value *before* the SAFE investment was added. This created a stacking problem. If a founder raised $500K on a $5M pre-money cap and then raised another $500K on the same terms, the two SAFEs interacted in unpredictable ways. Neither the founder nor the investors could easily calculate how much of the company each SAFE represented until all the SAFEs were totaled up together at conversion. ### The Post-Money Solution The post-money SAFE fixes this by defining the cap as the company's value *including* the SAFE investment itself. This means each SAFE's ownership percentage can be calculated immediately: **Ownership % = SAFE Investment Amount ÷ Post-Money Valuation Cap** A $500K investment on a $5M post-money cap always equals exactly 10% ownership. No ambiguity. No stacking confusion. Every investor knows their percentage the moment the SAFE is signed. The trade-off: post-money SAFEs are more dilutive to founders because the option pool created at the priced round is included in the post-money cap, effectively coming out of the founders' share. This is an important nuance we will revisit in the dilution section below. **The post-money SAFE is now the standard.** When someone says "YC SAFE template" today, they mean the post-money version. The pre-money template still exists on the YC website for reference, but Y Combinator explicitly recommends the post-money version for all new fundraises. --- ## The 4 YC SAFE Variants Y Combinator publishes four versions of the post-money SAFE. Each one covers a different combination of economic terms: ### 1. Valuation Cap, No Discount The most common variant. The investor's conversion price is capped at a maximum valuation. If the Series A valuation exceeds the cap, the SAFE investor converts at the lower (capped) price and gets more shares per dollar than the Series A investors. **Best for:** Most seed rounds where the founder and investor agree on a rough valuation range. ### 2. Discount, No Cap The investor receives a percentage discount (typically 15-25%) on the Series A price per share. There is no ceiling on the conversion price — the discount applies regardless of how high the Series A valuation goes. **Best for:** Situations where the founder and investor cannot agree on a valuation but want to reward the early investor with a discount to the next round's price. ### 3. Valuation Cap and Discount The investor gets the *better* of the two conversion prices: either the capped price or the discounted price, whichever results in more shares. This is the most investor-friendly variant. **Best for:** Larger checks or investors with strong leverage. Less common at the standard seed stage. ### 4. MFN (Most Favored Nation), No Cap, No Discount The MFN SAFE has no cap and no discount. Instead, it includes a clause that says: if the company issues a subsequent SAFE with better terms (a lower cap, a discount, or both), the MFN investor can amend their SAFE to match those better terms. **Best for:** Very early checks (pre-seed, friends and family) where no one wants to set a valuation. The MFN clause protects the early investor from being disadvantaged by later SAFEs with better economics. --- ## Key Clauses in the YC SAFE Template ### Valuation Cap The maximum valuation at which the SAFE converts to equity. In the post-money version, this cap includes the SAFE itself. If the company's Series A valuation exceeds the cap, the SAFE investor converts at the cap, effectively getting a lower price per share. ### Discount Rate A percentage reduction applied to the price per share that Series A investors pay. A 20% discount means the SAFE investor pays 80% of the Series A price. The discount only matters when it produces a lower conversion price than the cap. ### Pro Rata Rights The YC SAFE includes an optional side letter granting pro rata rights — the right for the SAFE investor to invest additional money in the next priced round to maintain their ownership percentage. This is not in the SAFE itself but in a separate pro rata side letter that YC also publishes. Pro rata rights matter more than many founders realize. A seed investor with pro rata rights can participate in your Series A, which is usually welcome. But it can complicate the round if your Series A lead wants to take a larger allocation and your existing investors all exercise their pro rata. ### Conversion Mechanics (Equity Financing) When the company raises a "qualified" priced round (the Equity Financing), each SAFE converts into shares of the series being sold. The number of shares is calculated by dividing the SAFE investment amount by the conversion price, which is the lower of: - The price per share implied by the valuation cap - The price per share paid by new investors, less any applicable discount ### Liquidity Event Provisions If the company is acquired or goes public before a priced round, the SAFE investor can choose the greater of: 1. Receiving back their investment amount (a return of capital), or 2. Converting into common stock based on the valuation cap and participating in the acquisition proceeds ### Dissolution Event If the company shuts down, SAFE holders receive their investment amount back *before* common stockholders receive anything, but *after* any creditors are paid. SAFEs are senior to common stock but junior to debt. ### MFN Provision Present only in the MFN variant. If the company issues a subsequent SAFE with a valuation cap, discount, or other more favorable terms, the MFN investor can elect to amend their SAFE to match. This provision expires when the SAFE converts. --- ## How the Post-Money SAFE Calculates Your Dilution This is where founders most often get confused. Let us work through a concrete example. ### Setup - **Founders own:** 8,000,000 shares of common stock - **SAFE 1:** $1,000,000 on a $10,000,000 post-money cap - **SAFE 2:** $500,000 on a $10,000,000 post-money cap - **Series A:** $5,000,000 at a $30,000,000 pre-money valuation - **Option pool:** 10% created at Series A (as is standard) ### Step 1: Calculate SAFE Ownership Percentages - SAFE 1: $1,000,000 ÷ $10,000,000 = **10.0%** - SAFE 2: $500,000 ÷ $10,000,000 = **5.0%** - Total SAFE ownership: **15.0%** ### Step 2: Calculate Series A Ownership - Pre-money: $30,000,000 - Post-money: $30,000,000 + $5,000,000 = $35,000,000 - Series A ownership: $5,000,000 ÷ $35,000,000 = **14.3%** ### Step 3: Calculate the Option Pool - 10% of the post-money capitalization = **10.0%** ### Step 4: Calculate Founder Dilution | Stakeholder | Ownership | |---|---| | Founders | 60.7% | | SAFE Investors | 15.0% | | Series A Investors | 14.3% | | Option Pool | 10.0% | The founders went from 100% ownership to 60.7%. That is nearly 40 points of dilution in a single round of SAFE conversions plus a Series A. ### The Critical Insight Under a post-money SAFE, the option pool comes out of the founders' share, not the SAFE investors' share. The SAFE investors' 15% is locked in from the moment the SAFEs are signed. This is why post-money SAFEs are more dilutive to founders than the old pre-money version — and why understanding this math before you sign is essential. --- ## Common Mistakes Founders Make with SAFEs ### 1. Raising Too Much on SAFEs Without Tracking Dilution Because SAFEs do not immediately show up on your cap table as equity, it is easy to keep signing them without realizing how much of the company you have given away. Founders who raise $3M across multiple SAFEs on a $10M cap have already committed to 30% dilution — before a single share of preferred stock is issued. ### 2. Using Different Caps Across SAFEs Issuing SAFEs with different valuation caps creates a conversion waterfall that is genuinely difficult to model. A $500K SAFE at an $8M cap, a $1M SAFE at a $10M cap, and a $200K MFN SAFE all convert at different prices, producing different share counts. Without proper modeling tools, founders routinely miscalculate their post-conversion ownership. ### 3. Ignoring the Option Pool Shuffle The option pool created at the Series A is negotiated between the founders and the lead investor, but its dilutive effect falls entirely on the founders in a post-money SAFE structure. A 15% option pool instead of a 10% pool costs the founders five additional points of ownership. ### 4. Not Setting a Minimum Raise Threshold The YC SAFE template does not include a minimum qualifying amount for the Equity Financing trigger. Some founders add a threshold (e.g., "a bona fide transaction with the principal purpose of raising capital, resulting in gross proceeds of at least $1,000,000") to prevent SAFEs from converting on a small bridge round at an unfavorable valuation. ### 5. Forgetting About Pro Rata Side Letters Signing pro rata side letters with every SAFE investor can create a significant allocation problem at the Series A. If your seed investors collectively hold 20% and all exercise pro rata, that is 20% of your Series A round spoken for before your lead investor gets to set their allocation. --- ## How SAFEs Convert During a Priced Round When you close your Series A, here is what happens mechanically: 1. **The lead investor sets the price per share.** For example, $30M pre-money valuation with 10M shares outstanding implies a $3.00 price per share for Series A Preferred. 2. **Each SAFE calculates its conversion price.** For a SAFE with a $10M post-money cap: the SAFE conversion price is $10,000,000 ÷ (total shares including the option pool, known as the "Company Capitalization" in the SAFE). If the Company Capitalization is 10,000,000 shares, the SAFE conversion price is $1.00 per share. 3. **SAFE shares are issued.** A $1,000,000 SAFE at a $1.00 conversion price receives 1,000,000 shares of Series A Preferred (or sometimes a separate series, such as Series Seed Preferred, depending on the negotiation). 4. **Cap table is finalized.** All SAFE shares, Series A shares, the option pool, and existing common shares are combined into the fully-diluted cap table. The key principle: SAFE investors receive the same class of preferred stock as the Series A investors (or a shadow series with identical economic terms), but at a lower price per share reflecting their earlier risk. Platforms like [OpenCap Stack](https://opencapstack.com) let you model SAFE conversions and waterfall scenarios before your priced round closes, so you can walk into Series A negotiations with a clear picture of the post-conversion cap table. --- ## Where to Download the Official YC SAFE Templates All four post-money SAFE templates are available for free on Y Combinator's website at [ycombinator.com/documents](https://www.ycombinator.com/documents). The page includes: - Post-Money SAFE: Valuation Cap, No Discount - Post-Money SAFE: Discount, No Cap - Post-Money SAFE: Valuation Cap and Discount - Post-Money SAFE: MFN, No Cap, No Discount - Pro Rata Side Letter The documents are provided as Word files that you can customize with your company name, investment amount, and economic terms. They require no legal fees to use, though having a startup attorney review your first SAFE is always a worthwhile investment. --- ## Frequently Asked Questions ### Is a SAFE note the same as a convertible note? No. A convertible note is debt — it carries an interest rate, has a maturity date, and must be repaid if it does not convert. A SAFE is not debt. It has no interest, no maturity date, and no repayment obligation (except in a dissolution event). SAFEs are simpler and faster to execute, which is why they have largely replaced convertible notes for early-stage fundraising. ### How much dilution should I expect from SAFEs? A common benchmark: if you raise 15-25% of your post-money cap in SAFEs, expect to give up 15-25% of your company to SAFE investors when they convert. Add another 10-15% for the Series A investors and 10% for the option pool, and founders typically retain 50-65% after a seed SAFE round plus Series A. ### Do SAFE investors get board seats? Typically no. SAFEs do not grant board seats, voting rights, or information rights. Those are negotiated at the priced round. However, some large SAFE investors negotiate a side letter with information rights (quarterly financial updates, for example). ### Can I negotiate the terms of a YC SAFE? Yes, but the point of using a standard template is to minimize negotiation. Most founders and investors treat the YC SAFE as a take-it-or-leave-it document, negotiating only the valuation cap, discount percentage, and whether to include a pro rata side letter. Modifying the template's legal terms is possible but uncommon and may raise red flags with sophisticated investors who expect the standard language. ### When should I use a priced round instead of a SAFE? Consider a priced round when you are raising more than $2-3M, when you have strong enough metrics to justify a specific valuation, or when your investors require board seats and governance rights. SAFEs work best for speed and simplicity at the earliest stages; once the stakes are higher, the clarity of a priced equity round often outweighs the convenience of a SAFE. --- ## Key Takeaways The YC post-money SAFE is a powerful tool for early-stage fundraising, but only if you understand what you are signing. Know which variant fits your situation, model your dilution before you commit to a valuation cap, and track every SAFE on your cap table from the moment it is signed. The math is straightforward — the mistakes come from not running it.

YC SAFE Note Template: Download, Understand Every Clause, and Avoid Common Mistakes

Check your site's AX Score