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A Guide to SAFEs, Caps, and Discounts (Startup Library)

Kirsty Nathoo / Y Combinator · Y Combinator Startup Library Free Intermediate

YC's fundraising library collects the canonical explainers on how SAFEs convert, how caps and discounts work, and how they dilute you. The most trustworthy free explanation of the instrument almost every seed round uses.

  • A valuation cap sets the max conversion price; a discount gives a percentage off the next round
  • Stacked SAFEs at different caps all convert together and can add up to serious dilution
  • Model the conversion before agreeing terms, not after
Open on ycombinator.com ↗

It answers 3 questions

  1. What is a SAFE and how does it actually work?
  2. What's the difference between a valuation cap and a discount on a SAFE?
  3. How much dilution should I expect across seed and Series A?

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