Post-Money SAFE Dilution: How to Model It for Founders

Most AI startups raise their first outside money on SAFEs. The documents are short and the closing is fast. The cost of that simplicity is that dilution is easy to underestimate. Founders who sign several SAFEs on different caps often learn what they own only when the Series A pro forma cap table arrives.

I'm Sergei Mochtchenkov, a CFA Charterholder and fractional CFO for AI startups. This guide explains how the post-money SAFE converts, how much of the company each SAFE really sells, and how to model the conversion yourself before a priced round, so the numbers in the term sheet do not come as a surprise.

What a post-money SAFE is

A SAFE (Simple Agreement for Future Equity) is a contract in which an investor pays now for the right to receive shares later. Y Combinator created it in 2013, and since 2018 its standard form has been the post-money SAFE. Y Combinator's SAFE documents page describes it as a short contract that "converts into shares automatically when your startup raises a priced round." It is not debt: there is no interest and no maturity date.

The US forms come in three versions:

• Valuation cap, no discount, the most common.
• Discount, no valuation cap.
• Uncapped MFN, which takes the better terms of any SAFE you issue later.

Pro rata rights sit in an optional side letter. They matter for modeling because they let that investor buy into your Series A.

Why "post-money" changes the dilution math

The word "post-money" refers to the cap. On a post-money SAFE, the cap is the company's value after all the SAFE money is counted, but before the priced round's new money. That makes the ownership sold easy to calculate. Y Combinator's SAFE User Guide puts it simply: ownership sold equals the investment amount divided by the post-money valuation cap.

So a 1 million SAFE on a 10 million post-money cap sells 10% of the company, measured just before the priced round. A 500,000 SAFE on a 5 million post-money cap also sells 10%.

The second consequence is less intuitive. Post-money SAFEs do not dilute each other. Each SAFE's percentage is fixed, so every additional SAFE comes entirely out of the founders' share (and the share of any other common holders). Y Combinator's SAFE conversion calculator gives the example directly: five 100,000 SAFEs at a 5 million cap sell 10%, not 2%.

The older pre-money SAFE worked differently. Its cap was measured before the SAFE money, so later SAFEs diluted earlier ones and nobody knew the final split until the round priced. The post-money form moved that uncertainty onto the founders. That is a fair trade for clarity, if the founder keeps a running total.

How a SAFE converts at the priced round

When you raise a priced round (usually a Series A or a priced seed), every outstanding SAFE converts into preferred stock. The investor gets the better of two prices:

1. The SAFE price: the post-money valuation cap divided by the company capitalization.
2. The round price: the price per share new investors pay, less any discount the SAFE carries.

If the round prices above the cap, the cap applies and the SAFE gets the ownership it implies. If the round prices below the cap, the cap does not bind and the SAFE converts at the round price (or the discounted price).

The definition of "company capitalization" is where most founder models go wrong. According to Y Combinator's calculator FAQ, for a post-money SAFE it includes outstanding shares, the existing option pool (issued, promised and unissued), and all other SAFEs and convertible securities. It excludes the new money in the priced round and any new or increased option pool created for that round.

Those two exclusions explain the result. Your existing pool is inside the capitalization, so it does not dilute SAFE holders. But the new round's money and the pool top-up dilute founders and SAFE holders together.

A worked example

The figures below are hypothetical and only illustrate the mechanics.

A two-founder AI startup owns 100% of its stock. Over 12 months it raises:

• SAFE 1: 500,000 on a 5 million post-money cap = 10%
• SAFE 2: 1,000,000 on a 10 million post-money cap = 10%

Before the priced round, the SAFEs together own 20% and the founders own 80%. Notice that the second SAFE raised twice as much as the first but sold the same percentage, because the cap was twice as high.

The company then raises a Series A of 6 million at a 24 million pre-money valuation, which is 30 million post-money. The new investors own 20%. The term sheet also requires an unallocated option pool equal to 10% of the post-money cap table, created before the new money comes in. The startup had no pool before, so all 10% is new.

New money (20%) plus the new pool (10%) take 30% of the post-money cap table. Everyone who held stock before the round shares the remaining 70%:

Holder	Before Series A	After Series A
Founders	80%	56%
SAFE 1	10%	7%
SAFE 2	10%	7%
Series A investors	–	20%
New option pool	–	10%
Total	100%	100%

The founders sold 20% on SAFEs and 20% in the Series A, and gave up another 10% to the pool, but they did not end at 50%. The SAFE holders also absorbed their share of the Series A and the pool, which is why founders land at 56% (80% × 70%).

Now change one thing. Suppose the founders had raised a third SAFE of 1 million at a 10 million cap before the Series A. That is another 10%, so pre-round founder ownership falls to 70% and post-round founder ownership falls to 49%. One extra SAFE cost the founders 7 points of the company after the Series A.

Discount and MFN SAFEs

Discount-only and uncapped MFN SAFEs cannot be put on the cap table as a fixed percentage until the round prices. Model them as a range.

For a discount SAFE, the conversion price is the round price less the discount. Y Combinator's documents note that discounts are commonly 10–20%. A 1 million SAFE with a 20% discount converts as if it had invested 1.25 million at the round price. Run the model at two or three plausible pre-money valuations.

For an uncapped MFN SAFE, the question is which later SAFE it will adopt. Y Combinator notes that an MFN SAFE takes the terms of SAFEs issued after the later of signing and funding. If you plan to issue a lower-cap SAFE soon, close it before the MFN investor funds, or model the MFN at that lower cap.

How to build a pro forma cap table

A spreadsheet with four blocks is enough to check the conversion:

1. Current fully diluted cap table. Founders, employees, issued options, promised options and the unissued pool, in shares.
2. SAFE register. For each SAFE: investor, amount, cap, discount, MFN flag, pro rata side letter and the date funds were received.
3. Round assumptions. Pre-money valuation, new money, target post-money pool, and whether any SAFE holders will exercise pro rata rights in the round.
4. Conversion and output. For each SAFE, the lower of the cap price and the discounted round price, the resulting shares, and ownership after the round for every holder.

Two checks catch most errors. First, ownership for each capped SAFE before the round should equal amount divided by cap. Second, the post-money percentages must sum to 100% and the new investors' percentage must equal new money divided by post-money valuation. If either check fails, the pool or the capitalization definition is usually wrong.

Keep this model connected to your operating plan. The amount you raise on SAFEs should come from your runway need, not from what investors happen to offer. My guide to startup runway and burn rate covers how to set that number, and a broader startup financial model ties the raise to hiring and compute spend.

Common SAFE dilution mistakes

• Treating SAFEs as free money until the A. Every capped post-money SAFE sells a fixed percentage the day it is signed. Track the running total.
• Raising on several caps without a plan. Stacked caps are fine, but decide the total amount and the total percentage you are willing to sell before the first one goes out.
• Ignoring the pool top-up. The new pool is usually sized on the post-money cap table but comes out of existing holders. Negotiate the pool size against an actual hiring plan.
• Forgetting pro rata side letters. If SAFE investors exercise pro rata in the Series A, less of the round is left for the lead, which can change how the round is sized.
• Assuming the SAFE has no effect on your 409A. New financing is one of the inputs a valuation firm considers. My guide to the 409A valuation for startups covers when to refresh it.

Investors will rebuild your cap table from the documents in your data room, so a clean SAFE register and pro forma model also speed up diligence. If you are planning a raise and want a second pair of eyes on the cap table, you can book a call, or read how I support startup fundraising.

FAQ

How much of my company does a SAFE sell?

On a post-money SAFE with a valuation cap, ownership sold equals the investment divided by the post-money cap, measured before the priced round. That stake is then diluted, along with the founders, by the priced round's new money and any new option pool.

Do SAFEs dilute each other?

Post-money SAFEs do not. Each SAFE's percentage is fixed, so additional SAFEs dilute the founders and other common holders. Older pre-money SAFEs did dilute each other.

What happens if the Series A prices below my SAFE cap?

The cap does not bind. The SAFE converts at the round price, or at the discounted price if the SAFE has a discount. SAFE holders get whichever price is better for them.

Should I raise on a SAFE or a priced round?

It depends on the amount, the number of investors and how much certainty you want on ownership. SAFEs are faster and cheaper to close. A priced round sets the valuation, board terms and investor rights at once. Model both before deciding.