Before you sign away a chunk of your company, understand the mechanics of a standard SAFE. This framework strips away the legal jargon so you can protect your equity and get back to building.

A SAFE (Simple Agreement for Future Equity) lets early-stage founders raise capital quickly without locking in a firm valuation today. It converts to equity during your next priced round based on a valuation cap or discount rate. Use this standard framework to model your cap table before paying lawyers.

A pre-money SAFE calculates the investor's ownership based on the company's valuation before the new money is added. This often leads to unpredictable founder dilution when stacking multiple notes. A post-money SAFE calculates ownership after the capital is injected. This provides absolute clarity on exactly how much of the company you are selling today - use it to protect your cap table.

The Asset
Review the standard clauses below. If you are raising a very early round, check out this standard pre-seed SAFE guide to understand the mechanics. For software companies, reviewing the post-money SaaS SAFE structure is highly recommended. Always reference Y Combinator's official standard documents to see the original framework trusted by investors.

Before using the framework, follow these prep steps:

1. Calculate dilution: Model your cap table using the lowest possible valuation cap.
2. Set terms: Define your discount rate and valuation cap limits internally.
3. Engage counsel: Hand this framework to your legal counsel to finalize the draft.

THIS INSTRUMENT AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933...

Company Name: [STARTUP NAME, INC.]
Investor Name: [INVESTOR ENTITY OR INDIVIDUAL]
Investment Amount: $[000,000.00]
Post-Money Valuation Cap: $[00,000,000.00]
Discount Rate: [80-85%]

1. Events
(a) Equity Financing. If there is an Equity Financing before the termination of this Safe, on the initial closing of such Equity Financing, this Safe will automatically convert into the number of shares of Safe Preferred Stock equal to the Purchase Amount divided by the Conversion Price.
(b) Liquidity Event. If there is a Liquidity Event before the termination of this Safe, this Safe will automatically be entitled to receive a portion of Proceeds.
(c) Dissolution Event. If there is a Dissolution Event before the termination of this Safe, the Investor will automatically be entitled to receive a portion of Proceeds.

2. Definitions
"Conversion Price" means the price per share equal to the Post-Money Valuation Cap divided by the Company Capitalization.
"Safe Preferred Stock" means the shares of the series of Preferred Stock issued to the Investor in an Equity Financing.

3. Company Representations
The Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation.

4. Investor Representations
The Investor has full legal capacity, power and authority to execute and deliver this Safe and to perform its obligations hereunder.

[SIGNATURE BLOCKS]

Pre-seed dilution: Expect a 15-20% equity dilution range during a typical pre-seed SAFE round.

Sample math.
If you raise $500,000 on a $5,000,000 post-money valuation cap, you are selling roughly 10% of your company. If your next round values you at $10,000,000, your early SAFE investors convert at the $5,000,000 cap - effectively getting shares at half the price of new investors.