Guide

Company setup and early instruments

Cap vs discount at conversion

Each SAFE converts at the more favorable of its cap price and the discounted round price — lower price, more shares.

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In a priced round, each SAFE typically converts at the more favorable of (a) the price implied by its cap and (b) the round price after any discount. "Favorable" means lower price per share → more shares for the SAFE holder.

Concept

Always read the signed form. YC's calculator encodes the standard post-money rules. Definitions of which shares sit in the cap denominator can differ.

Walking through a $2.00 Series A

Series A price per share (new money) = $2.00.

SAFE with 20% discount, no cap:
  conversion price = 2.00 × 0.80 = $1.60

SAFE with a $10M post cap only (from the stacking example):
  converted at $0.80 via the ownership method — better than $2.00

SAFE with both cap and discount:
  compute shares both ways; investor receives the better (larger) share count

Rule of thumb: if the round's pre-money valuation sits comfortably above your caps, caps bind and discounts rarely matter. If the round is flat or down relative to caps, SAFE holders may convert at the round price and own more than Investment / Cap.

In the stacking example, SAFE A already implied $0.80 and SAFE B $1.60. Against a $2.00 Series A, both caps still beat a 20% discount ($1.60). SAFE B's cap price and the discounted round price happen to match; SAFE A's cap is strictly better. You do not average $0.80 and $1.60.

Compare each SAFE's implied price to PPS × (1 − discount). If the form says "better of," adjust share counts and re-solve total shares (iteration, or YC's calculator). For standard cap-binds cases, one pass is enough.

One "friendly" SAFE with a discount or an MFN can rewrite earlier math. Model every row, not just the lead's cap.

Common mistakes

  • Picking the higher conversion price. Better-of is better for the investor.
  • Assuming every SAFE in the stack uses the cap. A flat round can switch some holders to discount or round price.
  • Forgetting to re-solve T after a better-of adjustment changes someone's share count.

Check yourself

Round price $2.00, 20% discount, cap implying $0.80. Which price converts?

$0.80 — min($1.60, $0.80).

When might SAFE holders own more than Investment / Cap?

When the round prices at or below the caps, so they convert at the round (or discounted round) price instead of the cap.

Key takeaways

  • Convert at the lower of cap-implied price and discounted round price.
  • Caps usually bind when the round is well above them.
  • Better-of changes can force you to re-solve the whole table.

Further learning

Next, put the stack into a priced round: SAFEs into Series A.

SAFE conversion math

Stack post-money SAFEs, convert them in a priced round with an option pool, and work share counts and ownership before and after Series A.

SAFE caps and discounts

The valuation cap, the discount, "better of," uncapped SAFEs, and when each one actually binds.

SAFEs into Series A

Two stacked SAFEs, a $5M Series A, and a 10% post-money pool — founders 56%, SAFEs 14%, new money 20%.