QUICK START GUIDEThe biggest advantage of the post-money safe is that the amount of ownership sold is immediately transparent andcalculable for both the founder and the investor. This Quick Start Guide will show how to take advantage of this structure
for the most common use cases. For an in-depth discussion of the structure and features of the safe generally, please
review the rest of the Post-Money User Guide that follows. If you are an investor, we also recommend reviewing
the “What if I’m an investor?” subsection in the Post-Money User Guide.
Note: in the examples below, if the valuation in the round in which the safe converts is less than the Post-Money Valuation
Cap or too close to the Post-Money Valuation Cap, the safes may convert into more than the estimated ownership. Please
see the Q&A section in the User Guide.
1. Raising money with a Post-Money Valuation Cap and calculating ownership soldA founder is targeting a $1 million raise and 15% ownership sold.
• Post-Money Valuation Cap is $6.7 million ($1 million / 15% = ~$6.7 million).
• “I’m targeting $1 million at $6.7 million post / $5.7 million pre. Post-money cap is $6.7 million.”• If the founder raises…
o $500k, then the ownership sold would be 0.5/6.7 = ~7.5%
o $800k, then the ownership sold would be 0.8/6.7 = ~12%
o $1 million, then the ownership sold would be 1/6.7 = ~15%
2. Raising money with multiple Post-Money Valuation Caps and calculating ownership soldA founder is targeting a $1 million raise and 15% ownership sold.
• Post-Money Valuation Cap #1 is $5.5 million.
• Post-Money Valuation Cap #2 is $8.3 million.
• If the founder raises $500k on each cap, then she will have sold ~15%
o $500k / $5.5 million = ~9%o $500k / $8.3 million = ~6%
3. Estimating the future dilutive impact of pro rata rights provided in the optional side letter
The pro rata right entitles the safe holders to subscribe for a percentage of the total round equivalent to their asconverted ownership (e.g. 15% if they invested $750k at a $5 million Post-Money Valuation Cap). You cantherefore backsolve dilution based on an assumption of how much the new investors in the Equity Financing
will demand. That formula is just the following:
Series A New Investors %Safe Pro Rata Allocation % = ----------------------------------------- Series A New Investors %(100% - Safes with Pro Rata %)Example:Safe fund raise• Company sold 15% of the Company pre-Series A in safes by raising $750k at a $5 million Post-Money
Valuation Cap• Company gave every safe investor a pro rata side letter• Company issues 8% of the Company pre-Series A in options to people hired between the safes and theSeries A

Series A assumptions• Lead investor and other new investors will own 25% post-Series A, not including the safe investors prorata• Option pool increase that creates a 10% unissued and available option pool post-Series A
Estimated dilutive impact post-Series A:
Safe Pro Rata Allocation %:25% / (100% - 15%) - 25% = 4.41%

Series A New Investors + Safes with pro rata:

25% + 4.41% = 29.41%

Series A dilution:

29.41% investments + 10% option pool = 39.41%

Adding it all up:
Safe dilution:

15% * (100% - 39.41%) = 9.09%

Options dilution:

8% * (100% - 9.09% - 39.41%) = 4.12%

Series A dilution:

39.41%

Total:

52.62%

Note #1: the 8% in options issued between the safes and the Series A are diluted by the safes and the Series A
terms.
Note #2: the safe ownership is post-safes. It is not post-Series A. The safes are like their own round, whichmeans they are diluted by the Series A (just like everyone else).

2

POST-MONEY SAFE USER GUIDEIn this User Guide, the post-money safe is referred to as the “post-money safe,” “Standard Safe” or simply “safe.”
The original version of the safe replaced by the post-money safe is referred to exclusively as the “original safe.”
In late 2013, Y Combinator introduced the original safe, or the Simple Agreement for Future Equity. At the time of
introduction, startups and investors were primarily using convertible notes for early stage fundraising. The original safe
was intended to be a replacement for convertible notes, and it has generally been successful in doing so.
In 2018, more than four years after introducing the safe, we decided it was time for the original safe to evolve. The mostsignificant change was that it became a post-money convertible security, as explained in detail below. This change wasaresponse to a shift we observed in the way that early stage companies raise money from investors, which is to treat safebased financings as independent seed rounds capable of providing multi-year runways, rather than shorter-term bridges
to priced preferred stock rounds.
In the post-money safe, we removed the pro rata right that existed as a default option in the original safe. That pro rata
right applied to the financing after the round in which the original safe converted (e.g. if the original safe converted in
the Series A, the pro rata right applied to the Series B). Instead, we created a standard side letter with pro rata rights that
apply to the round in which the safe converts (e.g. if the safe converts in the Series A, the pro rata right applies to theSeries A), which can be used if and when the parties agree to it. Although our original goal was to create a universal
standard for pro rata rights for all start-up companies, our experience was that we couldn’t do this in a way that madesense for all parties. For example, a company raising $500,000 from 10 angels investing $50,000 often has significantly
different considerations than one raising $2,000,000 from a single institutional investor. Also, the pro rata rights containedin the original safe were often misunderstood by both founders and investors as applying to the round in which the original
safe converted (the Series A), rather than the round after the one in which the original safe converted (the Series B). So
the standard pro rata side letter is an acknowledgment that this right is best handled case by case, and thatthe prior formof the right often wasn’t what founders and investors were expecting.
A list of other changes that have been incorporated into the post-money safe can be found in Appendix III. Most
importantly, the post-money safe is still a simple, standardized document, it retains the benefits of certaintyand speed,
and it continues to require little to no transaction costs for companies and investors.
Following the format of the original safe primer, this User Guide describes why, when and how to use the post-money
safe.
The information below applies specifically to a safe with a Post-Money Valuation Cap. Other versions of the safe aredescribed in Appendix I.
What do we mean by “post-money” safe
There are two important aspects to what we mean by “post-money” in the post-money safe:
1. The valuation cap in the safe is stated in terms of a post-money valuation (in contrast, the valuation cap in theoriginal safe was based on a pre-money valuation). A post-money valuation and a pre-money valuation are justtwo different ways of framing the same valuation of the company, but at different points in time. A pre-money
valuation is the valuation of the company immediately before the company receives the investment in thefinancing in question. A post-money valuation is just the valuation immediately after the investment ismade. For example, if a company is raising $2 million at a $10 million pre-money valuation, generally that’s
the same as saying that it is raising $2 million at a $12 million post-money valuation.1
2. Safe conversion shares are calculated on a “post” money basis, specifically:•

The Post-Money Valuation Cap is “post” all of the safe money. It is NOT also “post” the Equity
Financing (e.g. Series A) money. As mentioned above, we believe the market evolved to raising
independent financing rounds using original (pre-money) safes. So it would be inconsistent for the post3

money safes to have their post-money valuation calculated to include money raised in the Equity Financing
round. Doing that, in some cases, would even result in the sum of the money raised on safes and in the
Equity Financing exceeding the Post-Money Valuation Cap of the safes, which would be an absurd outcome(see the Q&A section for more on this topic). The result is that while the safes are not diluted by each other,
the safes will be diluted by the new money raised in the Equity Financing.
•

The Post-Money Valuation Cap is “post” the Options and option pool existing prior to the Equity
Financing. It is NOT also “post” the new or increased option pool adopted as part of the Equity
Financing (e.g. Series A). Again, this is consistent with treating the safes as an independent fundraise fromthe Series A in which they convert (assuming the Series A is the Equity Financing converting the safes). The
option pool that is created or increased as part of the Series A is intended to provide equity for the people
hired after the Series A, with the money raised in the Series A. This means that the safes are not diluted by
the Options granted or the pool created following the safe fundraise but prior to the Series A, which makes
sense because that’s the hiring pool enabled by the safe money. But the safes are diluted by the new orincreased option pool adopted as part of the Series A, because otherwise, the safes would be forcing thefounders to bear all of the dilution for two rounds of hiring rather than one, despite only providing enoughcapital for one round of hiring.

Why
The reasons to use the safe for early stage fundraising haven’t changed. Founders can close with an investor as soon as
both parties are ready to sign and the investor is ready to wire money, instead of trying to coordinate a single close withall investors simultaneously. And as a flexible, one-document security without numerous terms to negotiate, safes savestartups and investors money in legal fees and reduce the time spent negotiating the terms of the investment. Founders
and investors will usually only have to negotiate one item: the valuation cap. Because a safe has no expiration or maturity
date, there will be no time or money spent dealing with extending maturity dates, revising interest rates or the like.
But the more important question for users of the original safe is, why use the post-money safe? Because the post-money
safe isthe best way for both companies and investors to understand ownership. The original safe was standardized on apre- money basis and inclusive of the Series A option pool increase, which made it difficult for founders to calculate
precisely how they were being diluted when raising money. The answer to “how much of the company are we selling?”
was dependent on a recursive loop of how much was raised on other original safes, plus a hypothetical assumption about
theSeries A option pool increase that would be negotiated years later.
These unknowable elements meant that founders had a hard time planning out their fundraise so that they could sell an
intended and expected portion of their company. Founders might intend to sell around x% of their company. But they
didn’t have the best tools to accomplish this goal, which meant that they often ended up selling a lot more than they reallywanted to, when they didn’t have to. The post-money safe should now help founders better align their intentions with
1

The exception is when there is a negotiated agreement, usually in a priced round context, that the pre-money valuation will
not actually include safes or notes converting in the round, or portions of the option pool. For example, if the company israising a $10 million Series A at $40 million pre-money, but the parties agree that $1 million in outstanding safes convertingat a $10 million Post-Money Valuation Cap will not be in the pre-money, then the Series A new money is not getting 20%
ownership (10/(10+40) = 20%), it will be getting a little bit less because it will be diluted by the $1 million in safes. Thus inthis footnote example, the effective post-money valuation will be greater than $50 million.

4

outcomes, because calculating dilution and ownership requires little more than simple addition and division, and thissimple calculation will make planning around those factors easier as well.
When
Now as ever, most startups need to raise money soon after formation in order to fund their day-to-day operations, and thesafe is a vehicle for investors to fund companies at that very early stage. Unlike the sale of equity in traditional priced
rounds of financing, a startup can issue a safe quickly and efficiently, without multiple documents that require significant
legal time. Like the original safe, the post-money safe is still a one-document security, although we have included astandardized pro rata side letter that serves as an optional companion to the post-money safe, described in further detailin the Q&A section.
How
The process hasn’t changed: an investor and the company still agree on the amount to be invested and the valuation cap,they mutually date and sign a safe, and the investor sends the company the purchase amount. What happens next?
Technically nothing, until the occurrence of one of the specific events described in the safe (priced round, sale of thecompany or dissolution). However, we strongly recommend that companies keep an accurate cap table to record andtrack how the safes will convert into stock, which is more straight-forward with the post-money safe.
What if I’m an investor?
An investor generally only has to think about his/her own investment, rather than the structure of the entire round, andthere are three questions that are most common:
1. What ownership am I getting for my investment?
This wasn’t a question that an investor could answer under the original safes because:• The company could raise as little or as much as it wanted on top of the pre-money valuation.
• The investor didn’t necessarily know how much had been raised on other safes, and their corresponding
valuation caps, before the investment.
• The investor didn’t necessarily know how much was raised on safes, and their corresponding valuation
caps, after the investment.
• The ownership calculation included an unknowable variable, which was the Series A option poolincrease.
• The safes all diluted each other.
For example, if an investor gave a company a $500k investment at a $4.5 million pre-money valuation cap, theimplied ownership was not necessarily 500 / (4,500+500) = 10%. Any of the following could have been the
result:• The company had already raised $250k on a pre-money valuation cap of $2.75 million, which meantthat the $500k in safes on the $4.5 million pre-money valuation cap represented less than 10% because
they would be diluted by the $250k in safes at the lower valuation cap, and vice versa, even though the$500k came later.
• The company raised $1.5 million more on the same terms, after the $500k, so the total implied ownershipfor the $500k million was closer to 500/(4,500+2,000), plus the dilution from the $250k priorsafes = ~7%.
• Each of the figures above would also undergo some future adjustment based on the size of the option
pool and option pool increase in connection with the Series A.
The end result is that under the original safe, an investment of $500k at a $4.5 million pre-money valuation cap
only produced a distribution of ownership outcomes, rather than a definite ownership outcome. In other words,
an investment on those terms might result in a median ownership of something like 8% post-conversion, but
could also result in materially more or less ownership, like so (see next page):5

So if the investor was investing under the original safe with these distributions, then with the post-money safe,
the investor could invest that $500k at a Post-Money Valuation Cap that implies a slightly higher pre-money
valuation, i.e. the post-money safe allows the investor to exchange lower starting prices for more certainty on
ending ownership. For example, the investor could opt to invest $500k on a post-money safe with a Post-Money
Valuation Cap of $5.5 million (which implies a slightly higher pre-money of $5 million instead of $4.5 million),
which locks in ~9% ownership until the safes convert and are diluted by the Series A round, rather than rollingthe dice on a $500k investment at a $4.5 million pre-money valuation cap, which could result in a range ofoutcomes (some better and some worse).
Now investors can directly negotiate with the company on the amount of ownership they are looking for in
relation to the amount they are investing. The valuation cap becomes a transparent product of that negotiation
over ownership, and vice versa. A new investor can now say “I’d like X% for $Y” and be a lot more certain that
this is what he/she will actually get.
2. Would it be better to just do a priced round?
Depending on a variety of circumstances, occasionally it is a good idea to go straight to a priced round, but wethink investors appreciate the speed, cost and simplicity advantages of the safe. One of the primary reasonscertain investors prefer priced rounds has been the ownership uncertainty issue discussed above. With thatsolved, the question of priced round versus safe can be reduced to what other rights an investor is looking for -e.g. board seats, investor veto rights, info rights, etc. that often come attached to a priced round -- and whether
those rights are important or appropriate for the fundraise being proposed.
3. How should I think about pro rata rights?
The first question is whether an investor’s strategy and resources make follow-on investments important andfeasible to begin with, since low or no follow-on activity makes the pro rata side letter an unnecessary negotiation
point.
Another question is whether it would be preferable to maximize starting ownership instead, by investing a larger
amount at current prices, or negotiating for a lower Post-Money Valuation Cap in lieu of follow-on pro rata
rights.
Assuming the answers to these questions lead an investor to conclude that a pro rata right to participate in the
Equity Financing (e.g. Series A) is important, there isn’t much else to this other than asking the company for the
pro rata side letter as part of the safe investment and negotiating that ask if necessary. Please see Section E.1(page 14) in the Q&A for additional guidance about pro rata rights.

6

The Usual Disclaimer
The information in this User Guide (which includes the Quick Start section) is provided only as general information for
educational purposes, and to provide some insight into our thinking and the process by which we arrived at the postmoney safe. This User Guide is not being provided in service of an attorney-client relationship and is not intended to belegal advice. This User Guide should not be used as a substitute for competent legal advice from a licensed attorney inyour state.
This User Guide is also provided strictly as an explanatory and illustrative document, and should not be construed asinterpreting, providing an opinion on, or affecting in any way the terms or outcome of any particular transaction executedwith one or more safe forms, the terms and outcome of which are governed only by the applicable fully executed
agreement(s). Nothing in this User Guide should be incorporated or deemed to be incorporated (directly or by reference)
into any contract, agreement or similar document or instrument without the express written consent of each of the parties
to such contract, agreement or similar document or instrument. Likewise, any tax-related information contained in thisUser Guide was not intended or written to be used, and should not be used, to avoid tax-related penalties under any
applicable laws.
Y Combinator and each of its affiliates and affiliated persons expressly disclaims any responsibility for any consequencesof using this User Guide any version of the safe (or original safe) or any other document found on Y Combinator’s
website.

7

Q&A
Capitalized terms used but not defined in this section are defined in the safe.
A.
B.
C.
D.
E.
F.

Basic Mechanics
Safe Conversion in Equity Financings
Safe Conversion in Liquidity Events
Calculating and Managing Dilution
Pro Rata Rights
Practical Tips for Using the Safe
*

*

*

*

*

A. BASIC MECHANICS
1. Does a safe convert in a round of equity financing?
Yes, when the company decides to sell shares of preferred stock in a priced round (an “Equity Financing”), theoutstanding safes will convert into shares of preferred stock. There is no threshold amount of money in the postmoney safe that the company must raise to trigger the conversion.
2. Does a safe holder have a choice about converting a safe in an Equity Financing?
No, the conversion of a safe in an Equity Financing is automatic and the safe then terminates. A safe is intended
to turn safe holders into stockholders.
3. What happens to a safe if a company is acquired or merges with another company?
A merger or acquisition is a “Change of Control,” which is a Liquidity Event in the safe. In a Liquidity Event,a safe holder is entitled to receive a portion of the proceeds equal to the greater of (1) a return of its PurchaseAmount or (2) the as-converted proceeds it is entitled to in connection with a Liquidity Event (i.e., the proceeds it
would be entitled to had its Purchase Amount been converted into common stock at the Post-Money Valuation
Cap). In a Liquidity Event, the safe is junior to creditors and outstanding indebtedness (including outstanding
convertible notes) and has the same priority as standard non-participating Preferred Stock. Please see Examples
3 and 4 in both Scenarios in Appendix II.
4. What happens to a safe if the company goes public?
An Initial Public Offering is also a Liquidity Event under the safe, so the treatment of the safe in an Initial Public
Offering is the same as in a Change of Control – the safe would convert to shares of common stock.
5. What happens to a safe if the company shuts down and goes out of business?
If the company shuts down and goes out of business (a “Dissolution Event”), the safe holder is entitled to receive
its Purchase Amount back. In a Dissolution Event, the safe is junior to creditors and outstanding indebtedness(including outstanding convertible notes) and has the same priority as standard non-participating Preferred Stock.
6. What is the priority of the safe with respect to the company’s other securities in a Liquidity Event or
Dissolution Event?
The safe functions like standard non-participating preferred stock in a Liquidity Event or Dissolution Event.
That means that it ranks junior to payment of outstanding indebtedness (including outstanding8

convertible notes), on par with payments to other safe holders and preferred stockholders, and senior to payments
to common stockholders.
7. Does a safe ever expire?
A safe has no maturity date. A safe is designed to expire and terminate only when a safe holder has received
stock, cash or other proceeds, in an Equity Financing, Liquidity Event or Dissolution Event – whichever occurs
first. In theory, a safe could remain outstanding for a long time without the need to “extend” any dates or time
periods.
B. SAFE CONVERSION IN EQUITY FINANCINGS
1. What is the difference between Safe Preferred Stock and Standard Preferred Stock?
Standard Preferred Stock is the preferred stock issued to new money investors in the Equity Financing. Safe
Preferred Stock is issued in the Equity Financing as a separate series of preferred stock. Safe Preferred Stock has
identical rights, privileges, preferences, seniority, liquidation multiple and restrictions as the Standard Preferred
Stock, butthe liquidation amount, initial conversion price, and dividend amount are calculated based on the priceper share of the Safe Preferred Stock (which is determined by dividing the Post-Money Valuation Cap by the“Company Capitalization” (described below)). For example, if the company is raising a Series A round andissues Series A-1 Preferred Stock to the new money investors, a safe holder would be issued Series A-2 Preferred
Stock. The only differences between the Series A-1 Preferred and the Series A-2 Preferred would be the name,share price, per share liquidation amount (but not the liquidation preference or multiple), initial conversion priceand per share dividend amount (but not the dividend rate) attributable to that series. Safe Preferred Stock is also
sometimes referred to as “shadow preferred stock” or a “sub-series” of preferred stock. See Example 1, Question
2 in Appendix II.
2. What if the pre-money valuation of the company in the Equity Financing is higher than the safe’s PostMoney Valuation Cap?
The safe holder’s ownership will be the greater of (1) what’s implied by the Post-Money Valuation Cap, or (2)what could be purchased for the Purchase Amount (i.e., the original amount invested under the safe) at the priceper share paid by the new money investors in the priced round.
In most situations where the pre-money valuation of the company in the Equity Financing is higher than the
Post-Money Valuation Cap, the Post-Money Valuation Cap will apply. In that case, the safe holder will be issued
Safe Preferred Stock, which has a liquidation amount equal to the Purchase Amount. This feature means that theliquidation amount for safe holders does not exceed the original purchase amount of the safe (a 1x multiple,
assuming that the Standard Preferred Stock is also getting a 1x multiple). See Question 2 in Examples 1 and 2
in Appendix II.
However, in certain situations where the Post-Money Valuation Cap and the pre-money valuation of the Equity
Financing are close, the safe holder will actually receive more shares when using the price per share paid by the
new money investors. In these situations, the safe holder will receive shares of the Standard Preferred Stock(described in further detail below) at the same price per share paid by the new money investors.
To be clear, the possibility that the safe holder will receive more equity if the Equity Financing valuation does
not sufficiently exceed the safe’s valuation cap is not something that changed in the post-money safe. The
original safe also operated this way. If the pre-money valuation of the Equity Financing was close to the sum of
the pre-money valuation cap in the original safe and the amount raised under the original safe, investors under
the original safe also received more equity. In either regime, valuation caps are just that -- caps, rather than final
valuations.

93. What if the pre-money valuation of the company in the Equity Financing is lower than the safe’s PostMoney Valuation Cap?
As noted above, the safe provides that the safe holder will get the benefit of applying the Post-Money Valuation
Cap or receive shares of Standard Preferred Stock at the same price per share paid by the new money investors,
whichever results in a greater number of shares. When the pre-money valuation of the company in the Equity
Financing is lower than the Post-Money Valuation Cap, the safe holder will always receive a greater number ofshares by using the price per share paid by the new money investors, and the Post-Money Valuation Cap will
not apply. See Question 5 in Examples 1 and 2 in Appendix II.
4. In an Equity Financing, how does the calculation of an investor’s shares under the post-money safe differ
from the calculation of an investor’s shares under the original safe?
Assuming the valuation cap applies when converting the safe (i.e., converting at the Safe Price is moreadvantageous to the investor than converting at the price per share of the Standard Preferred Stock), in both theoriginal safe and the post-money safe, the number of shares issuable to the investor is equal to the (applicablepre- or post-money) valuation cap of the safe divided by the “Company Capitalization.”
The difference between the pre- and post-money safe share calculation lies in which securities are included in
the “Company Capitalization:”
Original Safe

Post-Money Safe

Outstanding shares of Capital Stock

Included

Included

Outstanding Options

Included

Included

Promised Options

Included*

IncludedUnissued Option Pool

Included

Included

Option Pool Increase

Included

Excluded

Safes, convertible notes and other similar convertibles

Excluded

Included* Since the original safe covered the existing pool and its increase, it implicitly included Promised Options sincethose could only be issued out of the post-increase option pool.
5. What is the Unissued Option Pool and why is it included in the Company Capitalization?
First, some background. As mentioned above, the original safe evolved to become a complete replacement fora priced seed round, and the post-money safe was designed to incorporate changes to better match that reality. In
pricedseed rounds, an option pool of some size is adopted that does not dilute the seed investors. For example, apricedseed round might have these terms:•••$5 million post-money valuation$500k invested
10% available option poolThis means that the seed investors will own 10% (0.5/5 = 10%), and company employees who are issued Options
will not dilute the seed investors’ 10% ownership until the company exhausts its 10% option pool. Once the poolis exhausted, the general expectation is that the pool will be expanded further and the resulting dilution willbe
shared by the company and the seed investors. The underlying logic is that up to a certain point, equity forcompany employees should not dilute the seed investors, since otherwise the seed investors would be funding10

their own dilution. Another way to characterize it is that the seed investors are valuing the company based on
forward-looking expectations, which generally requires new employees to be hired. Regardless of thephilosophical rationale, inclusion of some option pool is the conventional approach in priced rounds.
The safe approximates that option pool inclusion by including, in the Company Capitalization, a combination of
the following:•••

Outstanding Options -- Options that are actually issued and outstanding before the Equity Financing.
Including these options ensures that safe holders get similar treatment as they would in a priced seedround, i.e., they are not diluted by new hires made in between the safe round and the EquityFinancing.
Promised Options -- Options that are promised but not yet granted (see below for more details).
Including these options ensures that safe holders are treated fairly in cases where the companydelays
the issuance of options to employees made in between the safe round and the Equity Financing,that
otherwise would have or should have been issued and become Outstanding Options.
Unissued Option Pool -- the unissued and available portion of the option pool that exists before theEquity Financing. Including this pool means the safe holders are treated similarly to how they would
have been had the company done a priced round and not fully exhausted option pool increase that was
reserved in connection with that round prior to the next priced round.

The above explanation of the option pool issue is also notable for what it does not include, which is the increase
to the option pool that is typically required in the subsequent financing round (e.g. the Series A financing, if thatis the first priced round following the safe fundraise). The reason for that exclusion has already been explained
above. But it’s clear that this exclusion is consistent with the framework of viewing the safes as an independent
financing round. Including the Series A option pool increase in the Company Capitalization would effectively
require the founders to bear all of the dilution by themselves for two rounds of hiring (the hires made with thesafe money and the hires made with the Series A money), rather than one.
Most importantly, all of the above is consistent with the main goal of the post-money safe, which is making
ownershipeasier to understand. When founders and investors look at the cap table prior to the Equity Financing,the existing option pool can just be used without any adjustments in order to determine who owns what. For
example, if the pre-Equity Financing cap table looks like this:Founders

90%

Option Pool
Outstanding Options

8%

Unissued Option Pool

2%

Total

100%

And the company has sold $500k in safes with a Post-Money Valuation Cap of $5 million, then the cap tablewith the implied as-converted ownership of the safes is just that 10% ownership (0.5/5 = 10%) applied acrossthe cap table, diluting each row by 10%:
Founders

81%

Option Pool
Outstanding Options

7.2%

11

Unissued Option Pool

1.8%

Safes

10%

Total

100%

This example assumes that the Equity Financing has a pre-money valuation sufficiently greater than the PostMoney Valuation Caps of the safes. As noted earlier, if this is not the case, then the safes would end up withgreater ownership.
6. What are “Promised Options” under the safe and why are they included in the Company Capitalization?
“Promised Options” are promised but ungranted options, restricted stock awards or purchases, RSUs, SARs,
warrants or other like securities equal to the greater of those (a) promised pursuant to agreements made prior to
the execution of the term sheet for the Equity Financing (or the initial closing of the Equity Financing, if there
is no term sheet), or (b) treated as outstanding in the calculation of the Standard Preferred Stock’s price per share.
Practically speaking, the inclusion of Promised Options in the Company Capitalization means that the safe
holders are not diluted by them, which we explain above. Mechanically this is done by including the Promised
Options in the Company Capitalization, which reduces the price per share of the Safe Preferred Stock.
Fixing the number of Promised Options at the greater of (a) or (b) above does a few things.
••

Clause (a) ensures there’s a default cut-off date (signing of the term sheet) from which to calculate thePromised Options figure. Promised Options most frequently arise when a company has hired employees
but hasn’t had a chance yet to issue them the options promised to them. A clear cut-off date helps thecompany avoid a forced choice between (1) continuously updating the pro forma cap table for the Equity
Financing to account for updates to the Promised Options figure all the way until the closing, or (2)freezing hiring until the Equity Financing closes.
Clause (b) ensures that if the company and the investors in the Equity Financing agree to a different
treatment for Promised Options that is more advantageous than the default treatment in clause (a), thesafe holders get the same treatment. It also ensures that there’s consistency for all parties, since having
two different ways of treating Promised Options would only create confusion.

An important and related note: when a company signs a term sheet for a priced round, most 409A valuation firms
take the position that the then-current 409A price can no longer be used for option grants, because they view theterm sheet as a material event that implies a change in the company’s valuation. This event can negatively impact
employees who started work but haven’t received their options yet, since they joined the company in theriskier
pre-term sheet period but will not receive the benefit of the lower pre-round 409A price. Thus, the practicaladvice typically given to companies in this position is to make sure to take care of any “promised option” backlog
prior to signing a term sheet for a priced equity round. If companies are handling promised options in this ideal
manner, the number of “Promised Options” really should be zero anyway.
C. SAFE CONVERSION IN LIQUIDITY EVENTS
1. What is the difference between Company Capitalization and Liquidity Capitalization?
The “Company Capitalization” is the denominator used in calculating the Safe Price, which is the price used to
calculate the number of shares of Safe Preferred Stock issuable to the safe holder in an Equity Financing (i.e.,
the Safe Price equals the Post-Money Valuation Cap divided by the Company Capitalization). The Company
Capitalization:

12

•
•
•
•
•

Includes all shares of Capital Stock issued and outstanding;
Includes all Converting Securities;
Includes all (a) issued and outstanding Options and (b) Promised Options;
Includes the Unissued Option Pool; andExcludes any increases to the Unissued Option Pool (except to the extent necessary to cover Promised
Options that exceed the Unissued Option Pool) in connection with the Equity Financing.

The “Liquidity Capitalization” is the denominator used in calculating the Liquidity Price, which is the price used
to calculate the Conversion Amount payable to the investor in a Liquidity Event (i.e., the Liquidity Price equals
the Post-Money Valuation Cap divided by the Liquidity Capitalization). The Liquidity Capitalization:
•
•
•

•

Includes all shares of Capital Stock issued and outstanding;
Includes all (a) issued and outstanding Options and (b) to the extent receiving Proceeds, Promised
Options;
Includes all Converting Securities, other than any Safes and other convertible securities (including
without limitation shares of Preferred Stock) where the holders of such securities are receiving CashOut Amounts or similar liquidation preference payments in lieu of Conversion Amounts or similar “asconverted” payments; andExcludes the Unissued Option Pool.

The primary difference between the Company Capitalization and the Liquidity Capitalization is that the Liquidity
Capitalization excludes the Unissued Option Pool, because the acquirer in a Liquidity Event only buys thecompany’s outstanding equity, and equity that isn’t actually issued and outstanding, like the Unissued Option
Pool, is simply not part of the equation. The company will also have no need to issue options from the Unissued
Option Pool after the Liquidity Event.
The Liquidity Capitalization also excludes Converting Securities that will be cashed out based on their PurchaseAmounts (and thus no longer treated as outstanding securities in the Liquidity Event) and Promised Options thatwill not be receiving any proceeds from the transaction.
D. CALCULATING AND MANAGING DILUTION
1. Do I need to think about the amount of money I’m going to raise before I issue safes?
Yes. And generally, founders should have some sense of a target range for their fundraise, such as $500K - $1
million. Investors will often want to know the answer to the question “what business or technical progress is thisround intended to finance, over what period of time, and how much capital will that require?” before they invest,
so founders are encouraged to think about a target amount to raise in advance.
2. Is there a maximum amount of money that can be raised on a post-money safe?
Yes. Raising more than the Post-Money Valuation Cap would result in negative ownership for founders! We
obviously recommend raising much less than that number.
An example: assume the founders own 100% of the company before using the post-money safe. The founders
decide to raise money using a safe with a Post-Money Valuation Cap of $5 million. Below are the resulting
implied ownership levels for the founders at various amounts raised on the safe with these terms:
Amount Raised

Safe OwnershipFounder Ownership$500k$500k / $5 million = 10%

100% - 10% = 90%$2.5 million$2.5 million / $5 million = 50%

100% - 50% = 50%

13

$5 million$5 million / $5 million = 100%

100% - 100% = 0%

3. Will the safe ever result in more dilution than is estimated?
Yes. If the Equity Financing valuation does not sufficiently exceed the safe’s Post-Money Valuation Cap, thenthe safe holder will receive shares of Standard Preferred Stock at the lower price per share paid by the newmoney investors. As a result, the safe holder will receive a greater number of shares than was originally estimatedusing the Post-Money Valuation Cap. As discussed above, the original safe also operated this way.
E. PRO RATA RIGHTS
1. Do safe holders get pro rata rights?
The post-money safe does not carry over the prior version of pro rata rights. As described earlier, that rightgenerally wasn’t the one that parties were expecting anyway. The right that the parties were looking for is the
pro rata right to participate in the Equity Financing (i.e., the Series A, if the Series A is the round in which thesafes convert). We considered putting that pro rata right to participate in the Equity Financing directly in the
post-money safe. But after much thought and discussion with a number of frequent users of the original safe, we
concluded that it’s impossible to create a universal standard for pro rata rights, since what’s appropriate for one
company raising $1 million may not be for another company raising $100,000.
Instead, we’ve created a standard side letter with a pro rata right to participate in the Equity Financing that canbe used at a company’s discretion. This allows each company to decide what is in its best interest.
Note to founders: Please consider this pro rata right carefully. When putting together the Equity Financing
round, you will have to make room for your new investors, your existing investors with pro rata rights, andperhaps your existing investors who don’t have formal pro rata rights but whom you decide you want in theround. If you haven’t carefully considered the pro rata right, you may end up taking more dilution than you
anticipated in order to include all of these investors in the round. Therefore, we strongly recommend that you
spend time thinking about how pro rata allocations might play out in an Equity Financing before you agree togrant them during your safe fundraise.
Note to investors: If you ask for and receive this right, please be responsive and commit or pass quickly
when a company tells you it is raising its Equity Financing and asks if you would like to participate. In ourconversations with founders, one of the biggest issues with pro rata rights is that investors who hold such rights
are slow to respond. Sometimes this is intentional, with the investor waiting until it looks like there is no closing
risk and the round is absolutely certain. Other times, the investor doesn’t respond until afterthe round has closed,
and then asks for a pro rata allocation, which is infeasible at that point. Theseconsiderations can delay the
finalization of allocations and the pro forma cap table for the round, and thus hold up the closing.
2. Can the pro rata side letter be used with the other forms of the safe listed in Appendix I?
In general, no. The pro rata side letter can only be used with forms of the safe that have a Post-Money Valuation
Cap (either the standard safe with a valuation cap only, or a safe with a valuation cap and discount), since theinvestor pro rata ownership is calculated using the Post-Money Valuation Cap.
3. What are some principled ways in which a company can give out pro rata side letters?
•

Require a Minimum Investment Amount -- An investor must invest at least some minimum amount inorder to qualify for pro rata rights. This is a common approach in priced rounds. For example, if the company
is raising $1 million, and three investors have invested $250k each, and the last $250k consists of14

25 people investing $10k each, the company could give pro rata rights only to the investors who invested$250k. In addition to being a straightforward method of allocating pro rata rights, it also streamlines theclosing process for the Series A since there are fewer pro rata rights holders to wrangle before closing theround. Requiring a minimum investment amount can also function as an incentive for investors to increase
the size of their initial safe check.
•

Give to All Safe Holders -- This is the most expedient approach since it minimizes negotiation. The problem
is that the company might not actually be avoiding negotiation, but instead may be deferring it untilthe Series
A round. Because the amount of pro rata allocation may represent, combined with the Series A new money
and associated option pool increase, more dilution than the founders want or are willing to accept, thisapproach is a trade-off.

•Target a Projected Amount of Series A Pro Rata Allocation -- Estimate how much extra ownership thecompany would have to sell in its Series A financing due to the pro rata rights held by safe holders andmanage the allocation of pro rata rights accordingly. Founders can backsolve this by rearranging the formula
covered in the Quick Start section.
Series A New Investors %Safes % with Pro Rata = 100% - -------------------------------Series A Total Round %If a company is: (a) raising 20% on safes, (b) estimates the Series A new investors will want 25%, and (c)wants the aggregate Series A dollars to represent no more than 28% (remember this doesn’t include theoption pool that has to be added as well), then the limit on the amount of pro rata rights would be 100% (25%/28%) = 10.7%. In other words, this works out to about half of the safes, i.e. safes representing ~10%
ownership.

F. PRACTICAL TIPS FOR USING THE SAFE
1. What corporate formalities need to be observed when issuing safes?
The company’s board of directors must formally consent to the issuance of the safes at a meeting or in a writtenconsent before the company issues any safes. Additional steps may need to be taken depending on whether there
are existing shares of preferred stock outstanding.
2. Can a safe have a discount, or a “Most Favored Nation” (MFN) provision?
Yes. This User Guide describes a safe with a Post-Money Valuation Cap. Other versions of the safe are describedin Appendix I.
3. The template safe contains a statement that it’s on one of the forms available at
http://ycombinator.com/documents and that each party represents and warrants it has not modified suchform except to fill in blanks and bracketed terms. What is the purpose of this statement?
The safe is, and always has been, “open sourced” for founders and investors to use as they see fit. As expected,
some users modified the online templates to change, delete or add various provisions, sometimes without
notifying the counterparty of such modifications. This practice forced companies and investors alike to waste

15

time and effort doing line-by-line comparisons of the modified safes against the online template in orderto identify
the changes (or to confirm that no changes were made). We think it’s important for parties to be very sure about
what they are signing. The statement was added to the standard template to ensure there are no surprises. Users
are welcome to remove the statement, with the idea that its absence alerts an unsuspecting party that one or moreof the standard provisions has been modified.
4. My company has outstanding original safes. Can I switch to using the post-money safes?
Possibly. There are several options to try:•••

If the company has only issued a few original safes, then it may be possible to work with those safe
holders to (with approval from the company’s board of directors) amend and restate the outstanding
original safes into post-money safes.
It’s possible to mix pre-money and post-money safes. However, having a combination of the two creates
cap table uncertainty, and the company will have to commit to careful cap table modeling by runningthe conversion calculations for all of the outstanding safes.
If the company has a lot of original safes outstanding, the simplest route is to just keep using the premoney safe template. We’ve always advocated that founders minimize the time spent on administrative
issues and fundraising so they can get back to the work of running a company.

5. My company has outstanding convertible notes. Can I switch to fundraising on post-money safes?
It’s generally not advisable to issue both convertible notes and safes since they are treated differently in a
Liquidation Event or Dissolution Event (outstanding convertible notes are treated as indebtedness and therefore
have priority over any outstanding safes). If a company has already issued many convertible notes, founders
should probably continue issuing convertible notes for simplicity. If a company has only issued a few convertible
notes, then it may be possible to work with the existing investors (with approval from the company’s board of
directors) to convert the outstanding convertible notes into post-money safes.
6. Can the safe be amended?
Yes. The safe can be amended with the written consent of the company and the investor, or with the writtenconsent of the company and a majority-in-interest of all then-outstanding safes with the same terms. The ability
to amend the safe with the consent of a majority-in-interest allows the company and its investors to work together
to sensibly amend the safe if the need arises. An investor’s Purchase Amount can never be amended without thatinvestor’s separate consent.
7. I am offering my investors an uncapped safe with no discount. Is there a template for this?
We do not have a fixed template for an uncapped safe with no discount, but you can adapt the “MFN [MostFavored Nation], No Valuation Cap, No Discount” Safe (described in Appendix I) by: (1) deleting the header(“MFN ONLY Version 1.1”), (2) deleting the paragraph “This Safe is one of the forms available at
http://ycombinator.com/documents and the Company and the Investor agree that neither one has modified theform, except to fill in blanks and bracketed terms,” (3) deleting Section 3 (the “MFN Amendment Provision”)
and (4) updating all numbering and section references to reflect the deletion of Section 3.
8. Is the safe subject to transfer restrictions?
Yes, the safe is subject to a transfer restriction in Section 5(d), which provides that it may not be transferredwithout the company’s consent, unless it is being transferred to an affiliate. In practical terms, this means thesafe holder cannot resell the safe to a different investor without the company’s approval.

16

9. What is the characterization of the safe for tax purposes?
We cannot give tax advice, so the only definitive thing we can say is that you should consult with your tax
advisor if this question is material to your usage of the safe. But we’ve always intended and believed the safe(original safe or post-money safe) to be an equity security.

17

Appendix I
Alternative Versions of a Safe(“Standard” version of a safe is Post-Money Valuation Cap only)
1. Valuation Cap and Discount•This is a safe with a negotiated Post-Money Valuation Cap and a Discount Rate. The “Discount Rate” applies
to the price per share of the Standard Preferred Stock sold in the Equity Financing and is equal to 100 minus
the discount percent (e.g., a 20% discount off the price per share of the Standard Preferred Stockequals a
Discount Rate of 80%).

•

Either the Post-Money Valuation Cap or the Discount Rate applies when converting this safe into shares of
Safe Preferred Stock in an Equity Financing, depending on which calculation is most advantageous to theinvestor.

•

The treatment of this safe in a Liquidity Event is the same as a Standard Safe.

2. Discount, No Valuation Cap•

This is a safe with a negotiated Discount Rate that applies when converting this safe into shares of Safe
Preferred Stock in an Equity Financing.

•

In a Liquidity Event, the investor is entitled to receive a portion of the proceeds equal to the greater of (1) areturn of its Purchase Amount or (2) the as-converted proceeds it is entitled to in connection with a Liquidity
Event (here, the proceeds it would be entitled to had its Purchase Amount been converted into common
stock at a price per share equal to the fair market value of such stock multiplied by the Discount Rate).

3. MFN [Most Favored Nation], No Valuation Cap, No Discount•This is a safe with no Post-Money Valuation Cap and no Discount Rate. If the company subsequently issues
safes with provisions that are advantageous to the investors holding this safe (such as a Valuation Cap and/or
a Discount Rate), the investor may choose to amend its safe to reflect the terms of the later-issued safes. The
amendment term is the so-called “MFN Provision.” The MFN Provision does not apply to any side lettersor ancillary agreements that do not amend or modify the terms of the later-issued safes. Note that, unlessthe later safes also include an MFN,the MFN of the safe is amended away once the safe holder decides the
MFN is triggered. In other words, the MFN Provision typically provides only one opportunity to amend thesafe, not multiple opportunities asthe company continues to issue additional safes. Moreover, it is important
to be aware that the MFN Provision does not permit the “cherry-picking” of terms. If a safe holder elects toconvert its MFN safe to reflect the terms of subsequently-issued safes, the amended safe will be identical to
the later safe (other thanthe Purchase Amount).

•

If there is an Equity Financing before this safe is amended pursuant to the MFN Provision, the investor
receives the same shares of preferred stock as the new money investors in the Equity Financing, at the same
price.

•

If there is a Liquidity Event before this safe is amended by the MFN Provision, the investor is entitled toreceive a portion of the proceeds equal to the Purchase Amount.

Appendix II
EXAMPLE 1 – post-money safes only
ABC, Inc. (the “Company”) raised $1,000,000 from two investors. Investor A purchased a $200,000 safe at a $4m postmoney valuation cap safe and Investor B purchased an $800,000 safe at an $8m post-money valuation cap.
1) What is the estimated dilution from these two safes?
At this point, the Company has sold a minimum of 15% to investors.
Investor A = $200,000 / $4,000,000 = 5%
Investor B = $800,000 / $8,000,000 = 10%
The Company issued a pro rata side letter to Investor B, giving this investor the right to purchase 10% of the new money
being raised in the next Equity Financing. For example, if the Company raises a $5m Series A, Investor B would have acontractual right to invest up to $500k.
2) What is the impact of an Equity Financing on the Company’s cap table?
The Company signed a Series A term sheet to raise $5m at a pre-money valuation of $15m (which pre-money valuation
includes (i) an ungranted and unallocated employee option pool representing 10% of the fully-diluted post-closing
capitalization and (ii) all shares of Company capital stock issued in respect of outstanding safes and/or convertible
promissory notes), resulting in a post-money valuation of $20m. Investor C, the lead investor, will be investing $4m for
20% post-closing fully diluted ownership.
Pre-money valuation:
Total raise (new cash):
Post-money valuation:$15,000,000$5,000,000$20,000,000

Target available option pool:
Option pool increase:
Series A price per share:

10%
1,695,000 shares$1.1144

Immediately prior to the financing and safe conversion, the cap table looks as follows:Founders
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000
9,250,000

Stock Plan0

300,000
350,000
650,000

Total
Securities
9,250,000
300,000
350,000
9,900,000

100,000

100,000

1.00%

750,000

10,000,000

100.00%

Options available
Total fully diluted

9,250,000

0Outstanding
Ownership
93.43%
3.03%
3.54%
100.00%

Fully
DilutedOwnership
92.50%
3.00%
3.50%
99.00%

Preferred
Stock

Safe Conversion
As explained in example #1 above, the Company’s outstanding post-money safes will convert into at least 15% of theCompany Capitalization, which includes, without double counting, all safe and note conversion shares, the existing
option pool, and all promised options, but excludes the new money shares as well as the option pool increase associatedwith the Equity Financing. In this example, the safes convert into exactly 15% because the post-money valuation of theEquity Financing is sufficiently high that all safes convert into Safe Preferred Stock at a price per share based on theirrespective valuation caps rather than Standard Preferred Stock at the Series A price per share (see Section B, question 2
in the Q&A).
Company Capitalization = Capital Stock Issued and Outstanding + Issued, Outstanding, and Promised Options +Unissued Options Pool + Converting Securities= 9,250,000 + 650,000 + 100,000 + (Company Capitalization * 15%)

= 10,000,000 / (100% - 15%)
= 11,764,705
Investor A’s shares = 11,764,705 * 5% = 588,235 shares of Series A-1 Preferred Stock
Investor B’s shares = 11,764,705 * 10% = 1,176,470 shares of Series A-2 Preferred Stock
Immediately after the safe conversions, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

1,764,705

9,250,000

1,764,705

Outstanding
Ownership
79.30%
5.04%
10.09%
2.57%
3.00%
100.00%

Fully
DilutedOwnership
78.62%
5.00%
10.00%
2.55%
2.98%
99.15%

300,000
350,000
650,000

Total
Securities
9,250,000
588,235
1,176,470
300,000
350,000
11,664,705

100,000

100,000

0.85%

750,000

11,764,705

100.00%588,235
1,176,470

Options available
Total fully diluted

Stock
Plan

New Money
The Company is raising $5m at a pre-money valuation of $15m. The Series A price per share is calculated as follows.
Series A Price per Share = pre-money valuation / (total fully diluted shares post safe conversion +option pool increase)= $15,000,000 / (11,764,705 + 1,695,000)= $1.1144
The Company will sell 4,486,719 shares of Series A Preferred Stock ($5,000,000 divided by the Series A price per shareof $1.1144). Investor C, the lead investor, will purchase 3,589,375 shares ($4,000,000 divided by $1.1144) and Investor
B will exercise its pro rata right.
Investor B’s pro rata = Total Series A Shares * pro rata ownership percentage= 4,486,719 * 10%= 448,671 shares of Series A Preferred Stock for $499,998.97
After the Series A financing round, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Investor C
Other new investors
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

6,251,424

9,250,000

6,251,424

300,000
350,000
650,000
1,795,000

1,795,000

10.00%

2,445,000

17,946,424

100.00%20

Outstanding
Ownership
57.27%
3.64%
10.06%
22.22%
2.78%
1.86%
2.17%
100.00%

Fully
DilutedOwnership
51.54%
3.28%
9.06%
20.00%
2.50%
1.67%
1.95%
90.00%

Total
Securities
9,250,000
588,235
1,625,141
3,589,375
448,673300,000
350,000
16,151,424

588,235
1,625,141
3,589,375
448,673

Options available
Total fully diluted

Stock
Plan

Investor B maintained its 10% ownership by purchasing 10% of the shares of Series A Preferred Stock issued in thisround. However, its post-closing fully diluted ownership is 9.06% instead of 10% because its safe conversion shares are
diluted by the option pool increase. Investor A’s post-closing fully diluted ownership is 3.28% because it was diluted byboth the total Series A Preferred Stock issued in this financing (since the Company did not grant it a pro rata side letter)as well as the option pool increase.
In the safe, the Series A Preferred Stock is referred to as Standard Preferred Stock and the Series A-1 and Series A-2
Preferred Stock is referred to as Safe Preferred Stock. The table below sets forth a comparison between the Standard
Preferred and the Safe Preferred as each would be described in the Company’s certificate of incorporation.

Liquidation amount on a pershare basis
Aggregate payout in a Changeof Control transaction (eachseries pari passu with theothers)Conversion price and originalissuance price at the time of theSeries A financing
Dividend amount per
share (based on an 8%
dividend)

Series A(Standard Preferred)

Series A-1(Safe Preferred)

Series A-2(Safe Preferred)$1.1144$0.3400$0.6800$5,000,000$200,000$800,000$1.1144$0.3400$0.6800

Initially converts into
4,486,719 shares ofcommon stock

Initially converts into
588,235 shares ofcommon stock

Initially converts into
1,176,470 shares ofcommon stock$0.0892$0.0272$0.05443) What happens to the safes if the Company is acquired for $10m prior to an Equity Financing?
The Company receives a proposal to be acquired for $10m in cash. Immediately prior to the acquisition, the Company’s
cap table looks as follows:
Fully
CommonPreferred
Total
Outstanding
DilutedStock
Stock
Stock Plan Securities
Ownership
Ownership
Founders
9,250,000
9,250,000
96.86%
92.50%
Options outstanding
300,000
300,000
3.14%
3.00%
Promised options3
0
0
0.00%
0.00%
Total outstanding
9,250,0000
300,000
9,550,000
100.00%95.50%
Options available
Total fully diluted

9,250,0000450,000

450,000

4.50%

750,000

10,000,000

100.00%In this Liquidity Event, the individual safe holders will automatically receive the greater of their Purchase Amount (the“Cash-Out Amount”) or the amount payable on their Conversion Amount, the number of shares of Common Stock equal
to the Purchase Amount divided by the Liquidity Price.
3

Because treatment of promised options is deal-specific, we have removed them here to simplify the example.

21

Investor A’s Conversion Amount = Purchase Amount / Liquidity Price= $200,000 / (Post-Money Valuation Cap / Liquidity Capitalization)= $200,000 / ($4,000,000 / (9,550,000 / 85%))= 561,764
Investor B’s Conversion Amount = Purchase Amount / Liquidity Price= $800,000 / (Post-Money Valuation Cap / Liquidity Capitalization)= $800,000 / ($8,000,000 / (9,550,000 / 85%))= 1,123,529
The per share cash consideration for all stockholders, if the safes convert, is $0.8901 ($10,000,000 divided by the
Liquidity Capitalization of 11,235,293). In this scenario, both safes would automatically convert into common stock
because Investor A and Investor B’s pro rata share of the cash consideration exceeds their respective Purchase Amount(see calculation below).
Investor A’s share of cash consideration = 561,764 * $0.8901 = $500,026
Investor B’s share of cash consideration = 1,123,529 * $0.8901 = $1,000,053
4) What happens to the safes if the Company is acquired for $3m prior to an Equity Financing?
The Company receives a proposal to be acquired for $3m in cash.
Immediately prior to the acquisition, the Company’s cap table looks the same as in question #3 above in which it was
acquired for $10m. The calculation of each safe holder’s Conversion Amount is therefore the same. Investor A and
Investor B would receive 561,764 and 1,123,529 shares respectively.
The per share cash consideration, if the safes convert, is $0.2670 ($3,000,000 divided by the Liquidity Capitalization of
11,235,293). In this scenario, neither safe would convert since the safe holders’ pro rata share of the cash considerationis less than their Purchase Amount (see calculation below). After the safe holders are paid back, the remaining cash
consideration of $2m is shared pro rata among all other stockholders.
Investor A’s share of cash consideration = 561,764 * $0.2670 = $149,991
Investor B’s share of cash consideration = 1,123,529 * $0.2670 = $299,982
If in the example above, the Company had outstanding promissory notes, then those would have been paid back prior to
the safes since the safe holders’ right to receive their Cash-Out Amount is junior to payment of outstanding indebtedness
and credit claims.
5) What is the impact on the Company’s cap table of an Equity Financing with a post-money valuation of $11m?
The Company signed a Series Seed term sheet to raise $2.2m at a pre-money valuation of $8.8m (which pre-money
valuation includes (i) an ungranted and unallocated employee option pool representing 10% of the fully-diluted postclosing capitalization and (ii) all shares of Company capital stock issued in respect of outstanding safes and/or convertible
promissory notes), resulting in a post-money valuation of $11m. Investor C, the lead investor, will be investing $1.65m
for 15% post-closing fully diluted ownership.
Pre-money valuation:
Total raise (new cash):
Post-money valuation:$8,800,000$2,200,000$11,000,000

Target available option pool:
Option pool increase:
Series Seed price per share:

10%
1,573,000 shares$0.6577

Immediately prior to the financing and safe conversion, the cap table looks the same as in example #2 above. The
Company’s outstanding post-money safes will convert into a minimum of 15% of the Company’s Capitalization.
However, if the Series Seed price per share is less than the Safe Price, then the safe conversion shares are calculated
based on the Purchase Amount divided by the Series Seed price per share.
For purposes of this comparison, the Company Capitalization is calculated as follows.

22Company Capitalization = Capital Stock Issued and Outstanding + Issued, Outstanding, and Promised Options +Unissued Options Pool + Converting Securities= 9,250,000 + 650,000 + 100,000 + (Company Capitalization * 15%)
= 10,000,000 / (100% - 15%)
= 11,764,705(1) Purchase Amount divided by
Series Seed price per share(2) Purchase Amount divided by
Safe Price
Method that results in the greaternumber of shares

Investor A

Investor B

304,090 shares

1,216,360 shares

588,235 shares(11,764,705 * 5%)

1,176,470 shares(11,764,705 * 10%)(2) Safe Price(1) Series Seed price per share

For purposes of calculating the number of shares Investor A receives, the Company Capitalization is calculated asfollows.
Company Capitalization = Capital Stock Issued and Outstanding + Issued, Outstanding, and Promised Options +Unissued Options Pool + Converting Securities= 9,250,000 + 650,000 + 100,000 + (Investor B shares + (Company Capitalization * 5%))= (10,000,000 + 1,216,360) / (100% - 5%)= 11,806,694
Investor A’s shares = 11,806,694 * 5% = 590,334 shares of Series Seed-1 Preferred Stock
Immediately after the safe conversions, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

1,806,694

9,250,000

1,806,694

Outstanding
Ownership
79.02%
5.04%
10.39%
2.56%
2.99%
100.00%

Fully
DilutedOwnership
78.35%
5.00%
10.30%
2.54%
2.96%
99.15%

300,000
350,000
650,000

Total
Securities
9,250,000
590,334
1,216,360
300,000
350,000
11,706,694

100,000

100,000

0.85%

750,000

11,806,694

100.00%590,334
1,216,360

Options available
Total fully diluted

Stock
Plan

In this scenario, Investor B’s safe converted into 10.3% ownership versus the 10% implied by its $8m post-money
valuation cap because the Series Seed price per share is less than this safe’s Safe Price. Because Investor B has a pro rata
right, it will also be calculated based on this 10.3% ownership.
New Money
The Company is raising $2.2m at a pre-money valuation of $8.8m. The Series Seed price per share is calculated asfollows.

23

Series Seed Price per Share = pre-money valuation / (total fully diluted shares post safe conversion +option pool increase)= $8,800,000 / (11,806,694 + 1,573,000)= $0.6577
The Company will sell 3,344,990 shares of Series Seed Preferred Stock ($2,200,000 divided by the Series Seed price pershare of $0.6577). Investor C, the lead investor, will purchase 2,508,742 shares ($1,650,000 divided by $0.6577) andInvestor B will exercise its pro rata right.
Investor B’s pro rata = Total Series Seed Shares * pro rata ownership percentage= 3,344,990 * 10.3%= 344,533 shares of Series Seed Preferred Stock for $226,599.36
After the Series Seed financing round, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Investor C
Other new investors
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

5,151,684

9,250,000

5,151,684

Outstanding
Ownership
61.45%
3.92%
10.37%
16.67%
3.27%
1.99%
2.33%
100.00%

Fully
DilutedOwnership
55.32%
3.53%
9.33%
15.00%
2.94%
1.79%
2.09%
90.00%

300,000
350,000
650,000

Total
Securities
9,250,000
590,334
1,560,893
2,508,742
491,715300,000
350,000
15,051,684

1,673,000

1,673,000

10.00%

2,323,000

16,724,684

100.00%590,334
1,560,893
2,508,742
491,715

Options available
Total fully diluted

Stock
Plan

EXAMPLE 2 – combination of pre-money and post-money safes
ABC, Inc. (the “Company”) raised $1,000,000 from two investors. Investor A purchased a $200,000 safe at a $3.8m premoney valuation cap safe and Investor B purchased an $800,000 safe at an $8m post-money valuation cap.
1) What is the estimated dilution from these two safes?
At this point, the Company has sold at least 15% to investors. However, in this scenario there is more uncertainty since
the dilution from the pre-money valuation cap safe is more difficult to estimate because it depends on both (i) the option
pool increase associated with the Equity Financing in which the safe will convert as well as (ii) how much in total the
Company raises on convertible securities.
Investor A = $200,000 / ($200,000 + $3,800,000) = 5%
Investor B = $800,000 / $8,000,000 = 10%
The Company issued a pro rata side letter to Investor B, giving this investor the right to purchase 10% of the new money
being raised in the next Equity Financing. For example, if the Company raises a $5m Series A, Investor B would have acontractual right to invest up to $500k.
2) What is the impact of an Equity Financing on the Company’s cap table?
The Company signed a Series A term sheet to raise $5m at a pre-money valuation of $15m (which pre-money valuation
includes (i) an ungranted and unallocated employee option pool representing 10% of the fully-diluted post-closing
capitalization and (ii) all shares of Company capital stock issued in respect of outstanding safes and/or convertible

24

promissory notes), resulting in a post-money valuation of $20m. Investor C, the lead investor, will be investing $4m for
20% post-closing fully diluted ownership.
Pre-money valuation:
Total raise (new cash):
Post-money valuation:$15,000,000$5,000,000$20,000,000

Target available option pool:
Option pool increase:
Series A price per share:10%
1,700,000 shares$1.1115

Immediately prior to the financing and safe conversion, the cap table looks as follows:Founders
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000
9,250,000

Stock Plan0

300,000
350,000
650,000

Total
Securities
9,250,000
300,000
350,000
9,900,000

100,000

100,000

1.00%

750,000

10,000,000

100.00%

Options available
Total fully diluted

9,250,000

0Outstanding
Ownership
93.43%
3.03%
3.54%
100.00%

Fully
DilutedOwnership
92.50%
3.00%
3.50%
99.00%

Preferred
Stock

Safe Conversion
As explained in question #1 above, the Company’s outstanding safes will convert into at least 15% ownership. However,unlike in the post-money safes only scenario, there is less certainty on how dilutive the safes will be since Investor A
invested using a pre-money safe.
Investor A’s Conversion Shares = Purchase Amount / Safe Price
Safe Price = Pre-Money Valuation Cap / Pre-Money Safe Company Capitalization= $3,800,000 / (Pre-Financing Fully Diluted Shares + Option Pool Increase)= $3,800,000 / (10,000,000 + 1,700,000)= $0.3248= $200,000 / $0.3248= 615,763 shares of Series A-2 Preferred Stock
Investor B’s Conversion Shares = 10% * Post-Money Safe Company Capitalization
Post-Money Safe Company Capitalization = Capital Stock Issued and Outstanding + Issued, Outstanding, andPromised Options + Unissued Options Pool + Converting Securities= 10,000,000 + 615,763 + (Post-Money Safe Company Capitalization * 10%)
= 10,615,763 / (100% - 10%)
= 11,795,292= 11,795,292 * 10%= 1,179,529 shares of Series A-3 Preferred Stock25

Immediately after the safe conversions, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

1,795,292

9,250,000

1,795,292

Outstanding
Ownership
79.08%
5.27%
10.09%
2.57%
2.99%
100.00%

Fully
DilutedOwnership
78.42%
5.22%
10.00%
2.54%
2.97%
99.15%

300,000
350,000
650,000

Total
Securities
9,250,000
615,763
1,179,529
300,000
350,000
11,695,292

100,000

100,000

0.85%

750,000

11,795,292

100.00%615,763
1,179,529

Options available
Total fully diluted

Stock
Plan

New Money
The Company is raising $5m at a pre-money valuation of $15m. The Series A-1 (the new money series) price per share is
calculated as follows.
Series A-1 Price per Share = pre-money valuation / (total fully diluted shares post safe conversion+option pool increase)= $15,000,000 / (11,795,292 + 1,700,000)= $1.1115
The Company will sell 4,498,426 shares of Series A-1 Preferred Stock ($5,000,000 divided by the Series A-1 price pershare of $1.1144). Investor C, the lead investor, will purchase 3,598,740 shares ($4,000,000 divided by $1.1115) andInvestor B will exercise its pro rata right.
Investor B’s pro rata = Total Series A Shares * pro rata ownership percentage= 4,498,426 * 10%= 449,842 shares of Series A-1 Preferred Stock for $499,999.39
After the Series A financing round, the Company’s cap table looks as follows:Founders
Investor A
Investor B1
Investor C
Other new investors
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

6,293,718

9,250,000

6,293,718

Outstanding
Ownership
57.13%
3.80%
10.06%
22.22%
2.78%
1.85%
2.16%
100.00%

Fully
DilutedOwnership
51.40%
3.42%
9.06%
20.00%
2.50%
1.67%
1.95%
90.00%

300,000
350,000
650,000

Total
Securities
9,250,000
615,763
1,629,371
3,598,740
449,844
300,000
350,000
16,193,718

1,800,000

1,800,000

10.00%

2,450,000

17,993,718

100.00%615,763
1,629,371
3,598,740
449,844

Options available
Total fully diluted

Stock
Plan

Investor B maintained its 10% ownership by purchasing 10% of the shares of Series A-1 Preferred Stock issued in thisround. However, its post-closing fully diluted ownership is 9.06% instead of 10% because its safe conversion shares are
1

Investor B holds shares of Series A-3 Preferred, from its safe conversion, and Series A-1 Preferred, from its pro rata
investment of new money.
26

diluted by the option pool increase. Investor A’s post-closing fully diluted ownership is 3.42% because it was diluted by
the total Series A-1 Preferred Stock issued in this financing (since the Company and Investor A did not enter into a pro
rata side letter).

273) What happens to the safes if the Company is acquired for $10m cash prior to an Equity Financing?
The Company receives a proposal to be acquired for $10m in cash. Immediately prior to the acquisition, the Company’s
cap table looks as follows:
Fully
CommonPreferred
Total
Outstanding
DilutedStock
Stock
Stock Plan Securities
Ownership
Ownership
Founders
9,250,000
9,250,000
96.86%
92.50%
Options outstanding
300,000
300,000
3.14%
3.00%
Promised options4
0
0
0.00%
0.00%
Total outstanding
9,250,0000
300,000
9,550,000
100.00%95.50%
Options available
Total fully diluted

9,250,0000450,000

450,000

4.50%

750,000

10,000,000

100.00%In this Liquidity Event, Investor A has the option of either receiving its Cash-Out Amount or automatically receiving theamount payable on its Conversion Amount if it fails to select the cash option. Investor B will automatically receive thegreater of its Cash-Out Amount or the amount payable on its Conversion Amount.
Investor A’s Conversion Amount = Purchase Amount / Liquidity Price= $200,00 / (Pre-Money Valuation Cap / Liquidity Capitalization)= $200,000 / ($3,800,000 / 9,550,000)= 502,631
Investor B’s Conversion Amount = Purchase Amount / Liquidity Price= $800,000 / (Post-Money Valuation Cap / Liquidity Capitalization)= $800,000 / ($8,000,000 / ((9,550,000 + 502,631) / 90%)))= 1,116,959
The per share cash consideration for all stockholders, if the safes convert, is $0.8953 ($10,000,000 divided by the
Liquidity Capitalization of 11,169,590). In this scenario, both safes would convert into common stock because Investor
A and Investor B’s pro rata share of the cash consideration exceeds their respective Purchase Amount (see calculation
below).
Investor A’s share of cash consideration = 502,631 * $0.8953 = $450,006
Investor B’s share of cash consideration = 1,116,959 * $0.8953 = $1,000,013
4) What happens to the safes if the Company is acquired for $3m prior to an Equity Financing?
The Company receives a proposal to be acquired for $3m in cash. Immediately prior to the acquisition, the Company’s
cap table looks the same as in question #3 above in which it was acquired for $10m. The calculation of each safe holder’sConversion Amount is therefore the same. Investor A and Investor B would receive 502,631 and 1,116,959 shares
respectively.
The per share cash consideration, if the safes convert, is $0.2686 ($3,000,000 divided by the Liquidity Capitalization of
11,169,590). In this scenario, neither safe would convert since the safe holders’ pro rata share of the cash considerationis less than their Purchase Amount (see calculation below). After the safe holders are paid back, the remaining cash
consideration of $2m is shared pro rata among all other stockholders.
Investor A’s share of cash consideration = 502,631 * $0.2686 = $135,007
Investor B’s share of cash consideration = 1,116,959 * $0.2686 = $300,015

4

Because treatment of promised options is deal-specific, we have removed them here to simplify the example.

28

If in the example above, the Company had outstanding promissory notes, then those would have been paid back prior to
the safes since the safe holders’ right to receive their Cash-Out Amount is junior to payment of outstanding indebtedness
and credit claims.
5) What is the impact on the Company’s cap table of an Equity Financing with a post-money valuation of $11m?
The Company signed a Series Seed term sheet to raise $2.2m at a pre-money valuation of $8.8m (which pre-money
valuation includes (i) an ungranted and unallocated employee option pool representing 10% of the fully-diluted postclosing capitalization and (ii) all shares of Company capital stock issued in respect of outstanding safes and/or convertible
promissory notes), resulting in a post-money valuation of $11m. Investor C, the lead investor, will be investing $1.65m
for 15% post-closing fully diluted ownership.
Pre-money valuation:
Total raise (new cash):
Post-money valuation:$8,800,000$2,200,000$11,000,000

Target available option pool:
Option pool increase:
Series Seed price per share:

10%
1,575,000 shares$0.6566

Immediately prior to the financing and safe conversion, the cap table looks the same as in example #2 above. The
Company’s outstanding safes will convert based on their calculated Safe Price. However, if the Series Seed price pershare is less than the Safe Price, then the safe conversion shares are calculated based on the Purchase Amount divided
by the Series Seed price per share.
Investor A’s Conversion Shares = Purchase Amount / Safe Price
Safe Price = Pre-Money Valuation Cap / Pre-Money Valuation Cap Safe Company Capitalization= $3,800,000 / (Pre-Financing Fully Diluted Shares + Option Pool Increase)= $3,800,000 / (10,000,000 + 1,575,000)= $0.3283= $200,000 / $0.3283= 609,198 shares of Series Seed-2 Preferred Stock
Investor B’s Conversion Shares = Company Capitalization * Target Ownership
Company Capitalization = Capital Stock Issued and Outstanding + Issued, Outstanding, and Promised Options +Unissued Options Pool + Converting Securities= 9,250,000 + 650,000 + 100,000 + (Investor A’s shares + (Company Capitalization * 10%))= 10,609,198 / (100% - 10%)
= 11,787,997(1) Purchase Amount divided by
Series Seed price per share(2) Purchase Amount divided by
Safe Price
Method that results in the greaternumber of shares

Investor A

Investor B

304,599 shares

1,218,397 shares609,198 shares

1,178,799 shares(11,787,997 * 10%)(2) Safe Price(1) Series Seed price per share29

Immediately after the safe conversions, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

1,827,595

9,250,000

1,827,595

Outstanding
Ownership
78.88%
5.19%
10.39%
2.56%
2.98%
100.00%

Fully
DilutedOwnership
78.20%
5.15%
10.30%
2.54%
2.96%
99.15%

300,000
350,000
650,000

Total
Securities
9,250,000
609,198
1,218,397
300,000
350,000
11,727,595

100,000

100,000

0.85%

750,000

11,827,595

100.00%609,198
1,218,397

Options available
Total fully diluted

Stock
Plan

In this scenario, Investor B’s safe converted into 10.3% ownership versus the 10% implied by its $8m post-money
valuation cap because the Series Seed price per share is less than this safe’s Safe Price. Because Investor B has a pro rata
right, it will also be calculated using this 10.3% ownership.
New Money
The Company is raising $2.2m at a pre-money valuation of $8.8m. The Series Seed price per share is calculated asfollows.
Series Seed Price per Share = pre-money valuation / (total fully diluted shares post safe conversion +option pool increase)= $8,800,000 / (11,827,595 + 1,575,000)= $0.6566
The Company will sell 3,350,594 shares of Series Seed-1 Preferred Stock ($2,200,000 divided by the Series Seed priceper share of $0.6566). Investor C, the lead investor, will purchase 2,512,945 shares ($1,650,000 divided by $0.6566) andInvestor B will exercise its pro rata right.
Investor B’s pro rata = Total Series Seed Shares * pro rata ownership percentage= 3,350,594 * 10.3%= 345,111 shares of Series Seed-1 Preferred Stock for $226,599.89
After the Series Seed financing round, the Company’s cap table looks as follows:Founders
Investor A
Investor B
Investor C
Other new investors
Options outstanding
Promised options
Total outstanding

CommonStock9,250,000

Preferred
Stock

9,250,000

5,178,189

9,250,000

5,178,189

300,000
350,000
650,000
1,675,000

1,675,000

10.00%

2,450,000

16,753,189

100.00%30

Outstanding
Ownership
61.34%
4.04%
10.37%
16.67%
3.27%
1.99%
2.32%
100.00%

Fully
DilutedOwnership
55.21%
3.64%
9.33%
15.00%
2.94%
1.79%
2.09%
90.00%

Total
Securities
9,250,000
609,198
1,563,508
2,512,945
492,538
300,000
350,000
15,078,189

609,198
1,563,508
2,512,945
492,538

Options available
Total fully diluted

Stock
Plan

Appendix III
Summary of Substantive Changes in the Post-Money Safe
This is only a summary of the substantive changes to the Standard Safe. In general, the other flavors of the post-money
safe (valuation cap & discount, MFN-only, discount-only) only vary from the Standard Safe to the extent necessary to
implement and be consistent with their distinctive features (i.e. adding the discount, adding the MFN, etc.). Version
numbers are stamped on the upper right-hand corner of each form of the post-money safe.
Version 1.0 - Release Date 9/28/2018
Statement that neither party has changed the safe form except to fill in blanks and bracketed terms.
Location: Second paragraph of the Preamble
Notes: Covered in the Q&A section above.
The safe is expressly copyrighted and made available under the Creative Commons Attribution-No Derivatives
4.0 License.
Location: First page footer
Notes: Similar purpose as above. People have periodically asked us if they could re-publish the safe documents in
educational or reference materials, and our replies typically tracked the terms of the Creative Commons license
mentioned, i.e. provide attribution and please do not change the form without asking us first. We also wanted to makesure that if other people publish the safe documents in other public-facing channels (e.g. other websites, circulars, etc.),
they publish the actual safe documents, rather than modified versions that might confuse people into thinking that they
are viewing or using the “standard” versions.
Deletion of the post-conversion round pro rata right; addition of optional conversion round pro rata side letter.
Location: Section 1(a); Pro Rata Side Letter
Notes: Covered in the introduction and Q&A section above.
Safe holder’s payout choices in a Liquidity Event are indifferent to the form of consideration.
Location: Section 1(b)Notes: In a Liquidity Event, the original safe provided the holder with two options: (1) receiving up to 1x their investment
back in cash (or a lesser pro rata amount of cash if the company did not have enough cash to repay all of theoriginal safes
selecting this option), or (2) receiving the number of shares of common stock equivalent to the original safe’s as-converted
ownership in the company, based on the calculated Liquidity Price and Liquidity Capitalization. Forexample, if theoriginal safe holder invested $1 million at a $9 million pre-money valuation cap, and there were no other original safes,
the holder could choose between receiving up to $1 million in cash (or a lesser amount, if not enough cash was available),or receiving approximately 10% of the company in the form of common stock (1 / (9 + 1) = 10%).
The post-money safe provides the holder with the option of receiving value that is the greater of (1) 1x their investment
back incash and/or other forms of consideration (e.g. acquirer stock), or (2) the amount payable on the as-converted
ownership of the safe. This is done via the defined term “Proceeds” - which covers all proceeds payouts from the Liquidity
Event,whether stock or cash - and specifying the safe holder receives the portion of Proceeds that is the greater of thePurchase Amount or what would be payable on the as-converted ownership of the safe.
Also, in acquisitions where the proceeds consist of a mix of cash and stock, sometimes proceeds recipients are given a
choice between whether they want all cash, a mix of cash and stock, and/or all stock. The post-money safe stipulates that
if other company securityholders are given that choice, the safe holders will be treated the same way and also given thatchoice (subject to legal restrictions and constraints, such as securities regulations). However, if the acquirer does notprovide a choice and mandates a particular cash/stock split, then safe holders would be bound by such terms of theacquisition.

The safe’s priority in relation to other claims and securities in a Liquidity Event or Dissolution Event is confirmed
to be on par with standard preferred stock.
Location: Section 1(d)Notes: Covered in the Q&A section above. In our view, safes have always been properly classified as equity securities,so
this language confirms the original intent.
The definition of Company Capitalization was changed in the following ways: (1) the safe and other safes areincluded, (2) the Equity Financing option pool increase is no longer included and (3) the Unissued Option Pooland Promised Options are specifically included.
Location: Definition of “Company Capitalization”
Notes: Change #1 is what mechanically ensures that the valuation cap expressed in the safe operates as a post-money
valuation cap.
Change #2 ensures that all unknowable or dynamic elements of the conversion calculation, at the time the safes are issued,
are eliminated from the conversion calculation, since that is the only way to ensure a quick and easy way of calculating
the dilution implied by the safes. This concept is covered in the introduction and in the Q&A section of this User Guide.
Change #3 ensures that there is some reasonable approximation to the result that the company and investors would haveagreed on had they opted for a priced seed round instead. This is also covered in the Q&A.
The definition of Liquidity Capitalization was changed in the following ways: (1) the safe and other safes areincluded, except for safes and other securities opting to take their Cash-Out Amounts or similar liquidationpreference payments; and (2) Promised Options are included, but only to the extent they are receiving Proceeds.
Location: Definition of “Liquidity Capitalization”
Notes: Change #1 is what mechanically ensures that the valuation cap expressed in the safe operates as a post-money
valuation cap. It also ensures that all securities taking liquidation preference payments are not included in thedenominator- since those securities are not taking “as-converted” proceeds, they should not be part of the capitalizationused todetermine everyone’s share of the remaining “as-converted” proceeds following the payout of liquidation preferences.
Change #2 ensures consistency if the terms of the acquisition include payouts to holders of Promised Options, which canhappen from time to time.
The Investor Representations now also include an explicit acknowledgment and agreement that if the safe holder
is not an accredited investor at the time of the Equity Financing, the company can rescind the safe by returning
the Purchase Amount.
Location: Section 4(b), first sentence
Notes: This language ensures that the company is not obligated to issue shares upon conversion if the safe holder is notaccredited at the time of the Equity Financing, since otherwise it would make the Equity Financing ineligible for various
Regulation D safe harbors and/or cause issues with compliance with federal and state securities regulations.
The safe now includes a provision that allows a “majority-in-interest” to amend the safe.
Location: Section 5(a)Notes: Covered in the Q&A.
If the company pays a dividend on outstanding shares of common stock (besides dividends paid in the form of
additional shares of common stock), the safe holder now has the right to receive dividends as well, based on thesafe’s as-converted ownership.
Location: Section 5(c) and definition of “Dividend Amount”
Notes: From time to time a company will mature into a sustainable, cash flow positive business that is nonethelessunlikely to ever make it to venture scale and a traditional venture exit (an outcome that is not limited to companies fundedby safes). In that case, the dividend provision provides a way for safe holders to attain some liquidity by receiving payoutsat the same time that stockholders (e.g., the founders) are dividending themselves profits from the business.
Version 1.1 - Release Date 8/28/2021
Removal of the Valuation Cap and Discount Version of the Post-Money Safe
Location: This version of the safe was described in Appendix I of this User Guide. The User Guide was updated toremove the description. The actual safe was concurrently removed from the YC website.

Notes: Consistently, YC’s recommendation to founders was to issue either the valuation cap flavor safe or the discountflavor. We did not encounter situations where the combo safe was the preferred choice. Accordingly, we decided it wasincongruous to make this version available.
Version 1.2 – Release Date February 2023
The definition of “Safe Preferred Stock” was redrafted to include reference to liquidation multiple.
Location: Section 2
Notes: The Safe Preferred Stock must be identical to Standard Preferred Stock in every way other than with respect to its
per share original issue price, including liquidation multiple. For example, if in a liquidation event the Standard Preferred
Stock will receive two times its original issue price, then Safe Preferred Stock will also receive two times its originalissue price.
The assignment provision was modified to remove the proviso regarding change of company domicile.
Location: Section 5(d)Notes: We made this edit for drafting efficiency and simplicity.
The definition of “Subsequent Convertible Securities” in the MFN version of the safe was modified to specifically
exclude side letters.
Location: Section 2
Notes: Side letters are appropriate vehicles for non-economic items like information or board observer rights, which is
generally how companies and investors use them. The rights that a company bestows on an investor in a side letter should
not trigger an existing safe holder’s MFN safe. For example, if you issue Investor A an MFN safe and you subsequently
issue Investor B an MFN safe with a side letter granting Investor B a board observer role, the MFN safe now specificallycarves out the side letter and thus does not require that Investor A’s MFN safe be amended to provide Investor A with aboard observer right. However, if Investor B’s side letter contained provisions that amended the substantive (i.e.,
economic) provisions of Investor B’s safe – that falls outside of the side letter exclusion and as such, would trigger
Investor A’s MFN provision. We never intended for side letters with non-economic provisions to trigger the MFN
provision, and this edit makes that explicit.

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