A SAFE (Simple Agreement for Future Equity) is a contract where an investor gives you money now in exchange for shares later, when you raise a priced round. It is not a loan and not equity yet, so there's no interest, no maturity date, and no shares issued the day you sign. You're agreeing on the *terms* of a future conversion today, and the two terms that decide how much of your company that money buys are the valuation cap and the discount.
A SAFE converts to equity at your next priced round; until then nobody knows the exact share count.
The valuation cap sets the maximum price the SAFE converts at; a lower cap means the investor gets more shares.
The discount gives the investor a percentage off the round price (commonly 10-20%); the cap and discount don't stack, the investor takes whichever is better for them.
The standard YC SAFE is now post-money, so you can calculate exactly what you sold the moment you sign: amount raised divided by the post-money cap.
SAFEs are cheap and fast, but they stack, and the dilution lands all at once at the priced round, often more than founders expect.
What is a SAFE and why do startups use it?
A SAFE lets you raise money without setting a valuation, which is the hard, slow part of an early round. Y Combinator introduced the instrument in 2013 and rewrote it in 2018, and the current document is the post-money safe v1.1, which is the version most US pre-seed deals use today.
The appeal is speed. There's no board approval, no priced-round legal bill, and no negotiation over what the company is worth before you have the traction to justify a number. An investor can wire money against a few pages, and you can close one investor without waiting for the rest of the round.
The trade-off is that you're deferring the hard math, not avoiding it.
Every SAFE you sign is a promise to issue shares at a future event, and those promises all come due at the same moment, your priced round. That's where first-time founders get surprised, so the rest of this guide is about reading the terms before you sign them.
How does a valuation cap work?
The valuation cap is the maximum company valuation at which the SAFE converts into shares, and a lower cap means the investor gets a bigger slice. It protects the early investor: if your company is worth far more by the time you raise a priced round, their money still converts as if the company were only worth the cap.
With a post-money SAFE the math is blunt and immediate.
Ownership sold equals the amount raised divided by the post-money valuation cap. A $500,000 SAFE at a $10 million post-money cap sells 5% of the company, full stop, per Y Combinator's own primer on the post-money safe. The word "post-money" matters: the cap is measured after all SAFE money is counted but before the new priced-round money dilutes everyone, so the dilution from SAFEs falls entirely on you, the founder, not on the new lead investor.
That's the part the old pre-money SAFE hid, and it's why stacking several SAFEs at low caps can quietly hand away 25-30% before you've raised a "real" round.
How does the discount work, and does it stack with the cap?
The discount gives the SAFE investor a percentage off the price per share that new investors pay in the priced round, rewarding them for coming in early. A 20% discount means a Discount Rate of 80%: the investor converts at 80% of the round's price per share, per the YC SAFE documents.
Discounts in the wild usually run 10% to 20%.
Here's the rule that trips people up: the cap and the discount do not add together. When a SAFE has both, the conversion runs both calculations and the investor takes whichever produces more shares for them, never both at once. So a "cap plus discount" SAFE is investor-friendly because it gives them the better of two outcomes, not because the two terms compound.
What are the different types of YC SAFE?
Y Combinator publishes three standard US post-money SAFE templates, plus an optional pro rata side letter. Picking the right one is mostly about how much certainty each side wants on price.
| SAFE type | What it sets | Best when |
|---|---|---|
| Valuation Cap only | A maximum conversion valuation, no discount | You and the investor can agree on a ceiling price |
| Discount only | A % off the priced-round price, no cap | You want to defer pricing entirely but reward early money |
| MFN (uncapped, no discount) | No cap, no discount; investor gets the best terms you later grant any other SAFE holder | Very early checks where neither side wants to set a price yet |
The MFN ("Most Favored Nation") SAFE is the founder-friendliest on day one because it sets no price at all. Instead, if you later issue a SAFE on better terms, the MFN investor automatically gets those same terms, so it quietly ratchets to your most generous future deal.
The optional pro rata side letter is separate: it lets the investor put more money in at your next round to maintain their ownership percentage. It's worth understanding before you grant it, because it gives that investor a claim on future allocation.
What are you actually signing, and where do founders get burned?
You're signing a binding promise to issue shares, on terms you can't fully see the consequences of until the priced round happens. The single biggest mistake is stacking: signing SAFE after SAFE at different caps without keeping a running tally of total ownership sold.
Keep a live cap-table model. Add every SAFE's amount-divided-by-cap so you always know cumulative ownership sold.
Watch low caps. A small check at a low cap can cost more ownership than a large check at a high cap.
Understand post-money dilution falls on you. SAFE dilution is borne by founders and earlier holders, not the new lead.
Read the pro rata and MFN terms. These follow the investor into future rounds; don't grant them by reflex.
Use the unmodified YC template where you can. Custom 'side' edits are where surprise control and economic terms hide.
If you want to see SAFEs and priced rounds compared directly, our guide to priced rounds vs. SAFEs walks through the conversion math with numbers.
Where does StableCorp fit for a fundraising founder?
To accept SAFE money, you need an entity that can actually hold it, and for the VC track that's almost always a Delaware C-Corp, the structure US investors and YC SAFEs assume. StableCorp forms the Delaware C-Corp, gets your EIN, and opens the US business bank account the wire lands in. An EIN is required to open a US business bank account, applications without one are rejected, so that sequence isn't optional.
Here's the StableCorp-specific edge most fundraising guides skip: a lot of first-time founders today are global, and they raise in dollars but spend in another currency.
If your investor wires USD or sends USDC, StableCorp's compliant rails let you off-ramp it without bleeding margin to FX. For clients incorporated with us the offramp fee is 0.5% and direct off-ramp to INR is 1%, against a market norm of roughly 2.9% headline plus about 2% hidden FX (around 5% effective). On a $500,000 SAFE, that spread is real money, the gap between ~5% and 0.5% is roughly $22,500 of runway you keep.
That's the compliant path: purpose-code-based off-ramps with a clean paper trail, not the DIY direct-wallet route that lives in a regulatory grey area. See pricing for the full fee table, and our Delaware C-Corp formation guide for the structure VC-track founders raise into.
This is general information, not legal, tax, or investment advice. SAFE terms and template versions change, verify the current document at ycombinator.com/documents and have counsel review anything you sign. Accurate as of June 2026.
Sources
Y Combinator — Safe Financing Documents — https://www.ycombinator.com/documents/
Y Combinator — The Standard Deal — https://www.ycombinator.com/deal
Y Combinator — Understanding SAFEs and priced equity rounds — https://www.ycombinator.com/library/6m-understanding-safes-and-priced-equity-rounds