Fundraising
SAFE dilution explained
A SAFE does not dilute existing shareholders when it is signed — no shares are issued at that point. Dilution happens at conversion, usually in the next priced round, and the amount depends on the valuation cap, any discount, and whether the SAFE is a pre-money or post-money instrument.
Prepared by Perseids · Published · Updated
Cap and discount
A valuation cap sets the maximum valuation used to price the SAFE holder's shares. A discount gives the holder a percentage off the round price. Where both apply, the SAFE typically converts on whichever produces more shares for the holder.
Pre-money vs post-money SAFEs
| Pre-money SAFE | Post-money SAFE | |
|---|---|---|
| Ownership certainty | Holder's percentage moves as other SAFEs are added | Holder's percentage is fixed at conversion |
| Who absorbs later SAFEs | All SAFE holders share the dilution | Founders and existing holders absorb it |
| Typical current practice | Older instruments | Most common today |
Ownership certainty
- Pre-money SAFE
- Holder's percentage moves as other SAFEs are added
- Post-money SAFE
- Holder's percentage is fixed at conversion
Who absorbs later SAFEs
- Pre-money SAFE
- All SAFE holders share the dilution
- Post-money SAFE
- Founders and existing holders absorb it
Typical current practice
- Pre-money SAFE
- Older instruments
- Post-money SAFE
- Most common today
Worked example
A 500,000 post-money SAFE with a 5,000,000 cap converts into 10% of the post-money company at conversion, regardless of how many other SAFEs were signed afterwards. Stack three of those and you have committed 30% before the priced round is negotiated — a common and avoidable surprise.
How to keep control of it
- Track each SAFE's cap, discount and type from the day it is signed.
- Re-run the conversion model every time a new SAFE is added.
- Model conversion at several plausible round prices, not just your target.
- Include the option pool increase the round will require.
Prepared by Perseids for general information. It is not legal, tax or investment advice — confirm your specific situation with your advisers.
Frequently asked questions
- Do SAFEs dilute before a round?
- No. A SAFE is a right to future shares. Until conversion the share count is unchanged, though your effective ownership is already committed.
Put this into practice with Perseids.
Model this with your real cap table