Founder SAFE dilution: check your share before the next round

Know what your SAFE means

SAFE means Simple Agreement for Future Equity. It can turn into shares when a set event occurs. It is not the same as owning common stock now. The SEC makes this point in its US crowdfunding guide. That guide is not a global legal rule. [3]

Dilution means your share of the firm gets smaller. You may keep the same number of shares. New shares can still reduce your percentage.

A valuation cap helps set the price for future shares. It is not a proven sale value for your firm. Post-money means after the SAFE funds, not after all future rounds. Pre-money SAFEs use a different basis. Do not use the same quick sum for both. [1] [2]

Build one dated SAFE record

Start with the signed version of each deal. Match it to the cash received. Keep unsigned plans in a separate list. A cap table is a record of who owns shares. Show SAFEs as future claims, not shares already issued.

Link each row to the source file. Note any change to the terms. If a fact is missing, mark it unknown. Do not use zero to hide the gap.

• Holder, signed date, cash amount and currency.
• Pre-money or post-money basis; exact form and version.
• Cap and any discount, which can lower the share price.
• Side letters: extra rights agreed outside the main SAFE.
• Current shares, staff options and promised share grants.

Work through two separate snapshots

This is a made-up US-dollar example, not a target. The founders own all the starting shares. There are no staff options or other share claims. Both SAFEs use post-money caps with no discount. The cap sets their share price at conversion.

SAFE A raises $500,000 at a $5,000,000 cap. Divide $500,000 by $5,000,000: the estimate is 10%. SAFE B raises $250,000 at the same cap: 5%. Together they imply 15% before new round funds. Founders keep 85% in that snapshot. These are future-share estimates, not shares issued today. [1]

Now assume new investors take 20% of the final company. No new staff pool is added. The earlier holders keep 80% between them. Founders: 85% × 80% = 68%. SAFE holders: 15% × 80% = 12%. New investors: 20%. The final total is 100%.

SAFE A ends at 8%; SAFE B ends at 4%. Their earlier 10% and 5% are not fixed forever. New round shares dilute them too. YC states that post-money SAFE ownership is not post-Series A ownership. [1]

Check what the simple sum leaves out

The example has no notes, extra rights or new pool. Real deals can have all three. An option pool sets aside rights to buy staff shares. Ask how each existing grant and each new pool change enters the math.

Pro rata rights let a holder buy more in a later round. They do not give free shares or remove the need for cash. An MFN clause may let a holder take better later terms. MFN means most favoured nation. Read its exact scope. [1] [2]

YC warns that a low round value can change the estimate. Even a round value close to the cap can do so. The SAFE may then turn into more shares than the quick ratio implies. A cap is not a floor. Have your lawyer run the full share-price test. [1]

• Mixed pre-money and post-money SAFEs or loans that turn into shares.
• A lower round price, a discount or changed terms.
• New or promised staff grants and pool growth.
• Extra purchases under pro rata rights.

Keep ownership and cash plans apart

Show three views: shares now, estimated SAFE conversion, and shares after the next round. Date each view and list its assumptions. Do not call all three your current ownership.

SAFE cash already in the bank is not new cash next round. Count future funds only in the future cash plan. Keep share estimates apart from money you can spend.

Ask your adviser to test a lower round price too. Add a case with the planned staff pool and extra investor purchases. Compare founder ownership across the cases. Do not treat the result as a funding promise.

Review the full terms before more funds

Use this check before pre-seed or seed talks. Ask for a dated model tied to each signed file. Confirm who checked it and which gaps remain.

SAFEs can differ across firms and countries. The SEC notes that a trigger may never occur. Its warning concerns US crowdfunding, not all venture deals. Check what happens if no round occurs or the firm closes. [3]

Get local legal and tax advice for your firm. A US form is not a global rule. This guide is general education, not legal, tax or investment advice. Master Collective can help relevant founders and investors meet. It does not replace your advisers or promise funds.