Understand how a SAFE investment converts into equity during a future financing round.
A quick founder-friendly primer on the concepts behind this calculator.
A SAFE (Simple Agreement for Future Equity) is a financing instrument that allows startups to raise capital today in exchange for equity that converts during a future financing round. SAFE agreements are widely used by early-stage startups because they are faster, simpler, and more founder-friendly than traditional priced equity rounds.
A valuation cap sets the maximum valuation at which a SAFE converts into equity. If the company's future valuation exceeds the cap, the SAFE investor benefits by converting at the lower capped valuation, resulting in greater ownership.
Dilution occurs when new shares are issued to investors, employees, or other stakeholders. As additional ownership is created, existing shareholders own a smaller percentage of the company, although the overall value of the company may increase.
When a priced financing round occurs, the SAFE converts into equity based on either the valuation cap or the discount rate, depending on which method provides the investor with the more favorable conversion price. The resulting ownership is then incorporated into the company's post-financing cap table.
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