Video · 25 min

Understanding SAFEs and Priced Equity Rounds

Kirsty Nathoo · Y Combinator Free Beginner

YC's own CFO walks through exactly how a SAFE, a note, and a priced round each land on your cap table, and she does the cap and discount math live on slides so you can see founder ownership move. This is the canonical source: YC invented the SAFE, so this is the instrument explained by the people who wrote it, not a law firm reselling the idea.

  • A SAFE is not debt: no interest, no maturity, so it never comes due as a repayment problem before your next round
  • A valuation cap and a discount are two different levers, and the investor converts on whichever gives them the lower price (more shares, more dilution for you)
  • Model the shadow cap table: SAFEs do not show up as issued shares until they convert, so your real post-Series-A ownership is lower than the number you carry in your head
Open on ycombinator.com ↗

The question it answers

  1. SAFE or convertible note or priced round: which instrument should I raise on?

Read with it

  1. A practising senior partner spells out exactly why a raw US SAFE is dangerous for an Indian entity: it can be treated as a... Bar & Bench Article · 10 min read Convertible Notes and SAFE Notes in India: The Dilemma Madhavan Srivatsan
  2. This is the worked dilution example, actual numbers, not a hand-wave: a $100k SAFE with an $8M cap and a 15% discount... FundersClub Article · 6 min read Numerical Example: SAFE, Cap and Discount FundersClub
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