SAFE / Convertible Note Conversion Calculator
SAFEs and notes convert into preferred equity at the next priced round. The conversion price is the lower of the discounted round price and the cap-implied price, which can produce surprising outcomes for founders.
How SAFEs and notes work
A SAFE (Simple Agreement for Future Equity) and a convertible note are both instruments that delay the valuation conversation: the investor wires money now and gets equity at the next priced round, on more favorable terms than the new investors. The two key terms are the valuation cap (a ceiling on the conversion valuation) and the discount (a percentage off the round price). The conversion price is the lower of the two — the more favorable to the SAFE holder.
The cap usually wins
If the priced round is at a valuation comfortably above the cap, the cap-implied price is much lower than the discount-implied price, and the SAFE converts on the cap. If the round prices below the cap, the discount governs. SAFEs are generally bought because investors expect the next round to price above the cap; the cap is the protection against being penalized for being early.
Worked example
An investor wired $250,000 on a SAFE with a $5M post-money cap and a 20% discount, when there were 8,000,000 shares outstanding. The next round is at $15M pre-money, $5M investment ($20M post). Round price (8M shares + new investor): $15M / 8M = $1.875/share. Discount price: $1.50/share. Cap price: $5M / 8M = $0.625/share. Conversion price: $0.625. SAFE shares: 250,000 / 0.625 = 400,000. SAFE ownership in the new company: 400,000 / (8,000,000 + 400,000 + new investor shares) — typically around 3-4%.
Pre-money vs. post-money SAFEs
The original SAFE (2013) was pre-money: SAFE conversion happened before the new round investor's shares were issued, meaning founders bore all the dilution. The 2018 update is post-money: the cap is on the post-money valuation including all SAFEs, but excluding the new round. This makes the SAFE holder's ownership predictable up front but typically increases dilution to founders. Most current SAFEs are post-money. Read the document; the difference is significant.
What this doesn't account for
- MFN (most favored nation) clauses. If a later SAFE is issued on better terms, earlier SAFE holders may automatically inherit those terms.
- Pro-rata rights. Many SAFEs grant the right to participate in the priced round, allowing the investor to maintain ownership.
- Note interest. Convertible notes (unlike SAFEs) accrue interest that converts into additional shares at the round.
- Multiple SAFEs. A complete cap table usually includes several SAFEs at different caps, which compound the dilution effect.