Raise money

A SAFE has no valuation cap and no discount. Should I ever sign it?

The short answer

Almost never as a founder, because an uncapped, undiscounted SAFE means the investor is taking early risk but getting priced at whatever your next round sets, which is bad for them and a red flag for you. If an angel offers it, they either don't understand the instrument or are being lazy, so push for a cap that reflects real early risk. The only time it makes sense is a tiny cheque from a friend who genuinely just wants to back you and isn't optimizing returns.

Go deeper, your way

3 hand-picked resources, 3 link-checked. Pick how you want to dig in.

📄 Article
✓ Link checked Free Intermediate

Why we picked it This is the worked dilution example, actual numbers, not a hand-wave: a $100k SAFE with an $8M cap and a 15% discount converting into a round priced at $0.909 per share, showing the discount price ($0.77265) versus the cap price ($0.72727), why the cap wins, and the exact 137,500 shares issued. Change the inputs to your own cap and you can compute your dilution before you sign.

Numerical Example: SAFE, Cap and Discount

From FundersClub by FundersClub 6 min read

  • When a SAFE has both a cap and a discount, only one applies: whichever produces the lower price per share, which means more shares to the investor
  • On an $8M cap into a $0.909 round, the cap price of $0.72727 beats the 15% discount, so the cap is the operative term
  • Once your next round is priced well above the cap, the cap does all the dilution work and the discount becomes irrelevant
Open fundersclub.com →
🛠️ Tool
✓ Link checked Free Intermediate

Why we picked it The primary source for the SAFE itself, plus YC's plain-English primer explaining post-money mechanics. Use the official document, not a random copy, and read the primer before you sign.

YC Safe Financing Documents (Official Post-Money SAFE)

From Y Combinator by Y Combinator templates + primer

  • Post-money SAFE lets you calculate investor ownership precisely and immediately
  • Five standard variants (cap, discount, MFN, etc.) plus an optional pro-rata side letter
  • It's a starting point usable in most situations without modification
Open ycombinator.com →
🛠️ Tool
✓ Link checked India Free Intermediate

Why we picked it 100X.VC pioneered the iSAFE, India's answer to the US SAFE, and offers the standardized document plus a plain explanation. Indispensable for any Indian founder raising their first cheques the local way.

iSAFE: The Founder-Friendly Fundraising Instrument for Early-Stage Founders

From 100X.VC by 100X.VC template + explainer

  • iSAFE is the India-adapted SAFE, structured as compulsorily convertible preference shares to fit Indian law
  • It avoids an immediate valuation and expensive negotiation, using a short standardized document
  • Understand the conversion mechanics before issuing iSAFEs to multiple investors
Open 100x.vc →

Terms in this answer

Valuation Cap

People also ask

What is a SAFE and how does it actually work? A SAFE (Simple Agreement for Future Equity) lets an investor give you money now in exchange for equity later, when you raise a priced round, withou... Beginner 3 resources → What's the difference between a valuation cap and a discount on a SAFE? A cap sets the maximum valuation at which your SAFE converts, protecting the investor's upside if you raise your next round at a high price; a disc... Intermediate 3 resources → How is my startup's valuation actually decided at the early stage? At seed there's no spreadsheet truth; valuation is set by market comps, your traction, the strength of the team, and mostly by supply and demand fo... Intermediate 3 resources → What do the key terms in a term sheet actually mean? Term sheets split into economics (valuation, option pool, liquidation preference) and control (board seats, protective provisions, voting). The sca... Advanced 3 resources → How do SAFEs and term sheets differ in India versus the US? India can't use the plain US SAFE directly because of company-law constraints, so founders use the iSAFE (structured as compulsorily convertible pr... Advanced 3 resources → How much dilution should I expect across seed and Series A? Plan for roughly 10-20% dilution per priced round plus the option pool, and remember that stacked SAFEs at different caps all convert at once and c... Intermediate 3 resources →

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