How it's calculated
A SAFE (simple agreement for future equity) is a right to shares in a future priced round. Y Combinator's post-money SAFE sets the conversion price as the post-money valuation cap divided by the "Company Capitalization": all issued shares, all granted and promised options, the unissued option pool, and all converting SAFEs and notes, but not any increase to the option pool made for the new round.Y Combinator Because the SAFEs are counted in the denominator, each investor's percentage at conversion is simply their amount ÷ their cap.
A SAFE with a discount can instead convert at the round price less the discount; the holder gets whichever price gives more shares. YC's documents page lists the current forms: valuation cap without discount, discount without cap, and an uncapped "MFN" SAFE.Y Combinator
The formula
- Company Capitalization (CC) = shares + options + unissued pool + SAFE shares. With every SAFE at its cap: CC = (shares + options + pool) ÷ (1 − Σ amount ÷ cap).
- SAFE price (cap) = post-money cap ÷ CC; SAFE shares = amount ÷ price
- Pool increase for the round, then round price = pre-money ÷ (CC + pool increase)
- Discount price = round price × (1 − discount); the SAFE uses the lowest applicable price
Worked example
The calculator's defaults are Appendix II example 1 of YC's guide. The company has 9,250,000 shares, 650,000 granted options and 100,000 unissued pool shares. Investor A puts in $200,000 at a $4 million cap and Investor B $800,000 at an $8 million cap. Company Capitalization is 10,000,000 ÷ 85% = 11,764,705 shares: A receives 588,235 shares (5%) and B 1,176,470 (10%). A $5 million Series A at a $15 million pre-money with a 10% pool is priced at $1.11 per share, matching YC's $1.1144. After the round, A owns 3.278%.
| Line | Price per share |
|---|---|
| SAFE 1: $200,000 at $4,000,000 cap | $0.34 |
| SAFE 2: $800,000 at $8,000,000 cap | $0.68 |
| Priced round | $1.11 |
With a 20% discount on SAFE 1 and no cap, it converts at the discounted round price instead, and A owns 1.25% after the round.
Assumptions and limitations
- Post-money SAFEs only. The older pre-money SAFE excluded other SAFEs from the denominator and included the pool increase.
- Pro rata rights (a side letter in YC's forms) and MFN amendments are not modelled. In YC's example Investor B buys extra Series A shares under its pro rata right, so its final ownership in the guide is higher than shown here.
- Rounded shares. The guide rounds shares down to whole numbers; small differences in the last digit can result.