What is the difference between “pre-money” and “post-money” valuation cap SAFEs?
Takeaway: The shift from "pre-money" to "post-money" SAFEs was a critical evolution designed to give founders and investors certainty about dilution; the post-money SAFE is now the industry standard, and you must understand this distinction as it directly impacts how much of your company you are selling.
The SAFE (Simple Agreement for Future Equity) is the standard instrument for seed-stage fundraising. In 2018, Y Combinator, the creator of the SAFE, made a significant update to its standard template, shifting from a "pre-money" SAFE to a "post-money" SAFE. This was not a minor change; it was a fundamental rewiring of the SAFE's mechanics designed to solve a major problem of founder dilution and uncertainty in response to the market's evolution. While some older agreements may still exist, the post-money SAFE is the current industry standard.
The Problem with the Pre-Money SAFE
The original SAFE was a pre-money convertible security, which made it difficult for founders—and even investors—to calculate precisely how much of the company they were selling. The final ownership percentage was dependent on a series of unknowable future variables, including the total amount raised on other pre-money SAFEs and the size of the option pool that would be created in the future Series A financing. This often resulted in founders being diluted far more than they originally intended.
The Solution: The Post-Money SAFE's Certainty
The post-money SAFE was created to solve this problem by providing clarity and certainty to both founders and investors. The biggest advantage is that the amount of ownership sold is immediately transparent and calculable.
How It Works: The ownership percentage is determined by a simple formula: the investment amount divided by the Post-Money Valuation Cap. For example, a $1 million investment on a safe with a $6.7 million post-money valuation cap means the investors have purchased approximately 15% of the company ($1 million / $6.7 million). This allows founders to plan their fundraising with precision.
The Key Mechanical Difference: The post-money SAFE achieves this certainty by changing the definition of the "Company Capitalization" used to calculate the conversion price. Critically, this calculation:
Includes all other converting securities (like other SAFEs). This means the SAFEs do not dilute each other.
Excludes the new or increased option pool that will be created as part of the future priced round. This is the essential change that prevents founders from being "double diluted" for both the seed-stage and Series A hiring pools.
The post-money SAFE is a more transparent and founder-friendly instrument. It allows you to sell clear, discrete ownership stakes in your company during your seed round with full knowledge of the dilution you are taking on, a clarity that has made it the clear standard in the modern startup fundraising environment.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.