Know what you own before you sign

A post-money SAFE fixes the investor's ownership at the purchase amount divided by the valuation cap — a $1m SAFE at a $10m post-money cap owns 10% before the next round, and later SAFEs dilute the founders, not that investor. A pre-money SAFE converts on the pre-money share count including the next round's option pool increase but excluding other SAFEs, so its final ownership depends on how much else you raise. Y Combinator moved to the post-money SAFE in 2018 and it is now the common default.

It converts at the lowest price available to it: the cap price, the discounted round price, or the round price itself. For a post-money SAFE the cap price is the cap divided by the company's capitalization including every converting SAFE and note but excluding the new money and the new option pool. If the round prices below the cap, the SAFE converts at the round price instead and takes more shares than the cap implied.

When a term sheet asks for the option pool to be topped up in the pre-money valuation, the new options are carved out of existing holders only — the incoming investors are not diluted by them. The headline valuation stays the same, but founders' effective price falls. Sizing the same pool post-money spreads that dilution to the new investors too. The report prices the difference in percentage points so you can negotiate it.

A note is debt: it accrues interest, has a maturity date, and in a sale before conversion it is repaid ahead of every class of equity. At a priced round the principal plus accrued interest converts, usually at the lower of a cap price and a discounted round price. A SAFE carries no interest and no maturity.

In a sale, the investor chooses the better of two outcomes: its money back first (1x its investment) or converting to common and taking its ownership share of the proceeds. At low exit values the preference is worth more; at high exits converting is. Participating preferred takes its money back and its ownership share, which is far more expensive for founders; a participation cap limits that double dip to a multiple of the investment.

With stacked seniority, later rounds are repaid in full before earlier rounds receive anything. With pari passu seniority, all preferred rounds are repaid together and a shortfall is shared in proportion to what each is owed. The difference only matters when the sale price does not cover every preference.

No. Options that have not been granted are not held by anyone, so an acquirer pays nothing for them. They dilute ownership percentages on paper before a sale but receive no proceeds. Options already granted to employees do share in the exit.

Because liquidation preferences are paid before common stock. Below the total preference stack, founders can receive much less than their ownership share — or nothing. The exit chart in the report shows the exact sale price at which founders are first paid and the price from which they receive their full ownership share.