Free walkthrough
SAFE agreement walkthrough: the YC post-money SAFE, clause by clause
The SAFE is five pages long and most founders sign it without reading section 2. This walkthrough explains each clause in plain English, what it means for your ownership, and what to check. It follows the official Y Combinator post-money SAFE; download the current version from YC, not from a template site.
Use the official documents
Y Combinator publishes the SAFE for free and keeps it updated. Investors expect the unmodified YC text; anything extra belongs in a side letter, not hidden in the body.
The clauses, in order
Cover: purchase amount, post-money valuation cap, date
The first paragraph states that in exchange for the Purchase Amount the company issues the investor the right to shares, subject to the terms below. The Post-Money Valuation Cap is the only negotiated number in the standard SAFE; the discount and MFN versions replace or remove it.
What to check: The cap is a valuation. $500k on a $5M post-money cap is 10 percent of the company before the priced round, whatever the round’s price turns out to be.
Section 1(a): Equity Financing
When the company raises a priced round, the SAFE converts automatically into Safe Preferred Stock at the Safe Price: the cap divided by the Company Capitalization. If the round price is lower than the Safe Price, the SAFE converts at the round price instead. Safe Preferred is the same class as the round’s preferred, except that its liquidation preference and conversion price are based on the Safe Price.
What to check: Conversion is mandatory. The investor cannot opt out, and you cannot repay the money instead of converting.
Section 1(b): Liquidity Event
If the company is sold, goes public or has a change of control before a priced round, the investor receives the greater of two amounts: the Purchase Amount back in cash, or what the shares would be worth if the SAFE converted at the Liquidity Price, the cap divided by the Liquidity Capitalization. If there is not enough cash, SAFE holders are paid pro rata.
What to check: On an early acquihire the investor gets their money back first, before founders see anything from the sale.
Section 1(c): Dissolution Event
If the company shuts down or becomes insolvent, the investor is entitled to the Purchase Amount back, paid before common stock and alongside other SAFEs and preferred stock, out of whatever assets remain.
What to check: A dissolved startup rarely has assets; the clause mostly defines priority, not a real refund.
Section 1(d): Liquidation Priority
The SAFE is intended to behave like standard non-participating preferred stock: junior to debt and creditors, on par with other SAFEs and preferred, senior to common. This is why a SAFE is not a loan: there is no maturity date, no interest and no obligation to repay in the ordinary course.
What to check: Some investors ask to add interest or a maturity date. That turns the SAFE into a convertible note; use the note comparison tool before agreeing.
Section 1(e): Termination
The SAFE ends when it converts or pays out: on the Equity Financing, the Liquidity Event or the Dissolution Event. Until then it stays outstanding indefinitely.
What to check: An old SAFE that never converted still counts in the capitalization of every later round. Keep a register of every SAFE you have issued.
Section 2: Definitions, especially Company Capitalization
The definitions decide the math. Company Capitalization includes all shares and options outstanding, the unissued option pool and any increase to it in the round, and all other SAFEs and convertible securities, but excludes the new money from the priced round itself. That is what makes the SAFE post-money: the investor’s percentage before the round is fixed at Purchase Amount divided by cap.
What to check: Because the pool increase is in the denominator, a bigger pool in the round lowers the Safe Price and gives the investor more shares. Size the pool from a hiring plan.
Section 2: Discount and MFN variants
In the discount SAFE the Safe Price is the round price times one minus the discount, with no cap. In the MFN SAFE there is neither cap nor discount; if the company later issues a SAFE with better terms, the investor can adopt those terms. Caps and discounts are not combined in the standard forms.
What to check: An MFN SAFE adopts the lowest cap you later give anyone. Issuing one early sets a ceiling for the whole raise.
Section 3: Company representations
The company confirms it is duly incorporated and in good standing, has authority to issue the SAFE, is not violating its charter or any law by doing so, and that there is no litigation that would affect it.
What to check: Keep these true: approve the SAFE at board level and check that your charter allows the issuance.
Section 4: Investor representations
The investor confirms they have authority, are an accredited investor or the local equivalent, understand the risk, and are buying for their own account and not to resell.
What to check: Taking money from non-accredited investors on a SAFE can breach securities law in the US and elsewhere. Check who can legally invest in your jurisdiction.
Section 5: Miscellaneous
Amendments need the company and the investor, or in the current form the holders of a majority of SAFEs with the same cap; notices; the investor has no stockholder rights until conversion; the SAFE cannot be transferred except to affiliates; governing law; and the entire agreement clause.
What to check: The entire agreement clause means promises made in emails do not count. Anything agreed, such as pro-rata or information rights, goes in a side letter.
The pro-rata side letter
A separate one-page letter gives the investor the right to buy their pro-rata share of the next priced round, in proportion to the shares they would hold on conversion. It is standard for lead investors and larger checks, and optional for small angels.
What to check: Pro-rata rights given to every small SAFE investor make the next round harder to allocate. Grant them to leads and strategic angels only.
Where SAFEs go wrong
Not the clauses: the stack. Six SAFEs with different caps, an MFN clause from the first check and a pool increase at the round can quietly give away 35 percent before Series A. Model every SAFE in the stacked SAFE calculator before signing another one.
SAFEs outside the US
The SAFE assumes a Delaware corporation. In the UK the equivalent is an Advance Subscription Agreement with a long-stop date; in many EU countries convertible loans are used because local company law has no equivalent instrument. Use the local standard, not a translated SAFE, and take local advice.
Questions founders ask
Can I change the text of the SAFE?
You can, but sophisticated investors expect the standard text. Put extras in a side letter.
Is the pre-money SAFE still used?
Rarely. The post-money SAFE replaced it in 2018 because it fixes the investor’s percentage and makes dilution clear.
Is this legal advice?
No. It is an explanation to prepare the conversation with your lawyer and your investors.
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