SAFE mistakes founders make

The YC Post-Money Safe User Guide gives founders a warning: SAFEs can cause “more dilution than is estimated.” The SAFE is a short contract, and each SAFE looks small. Founders sign them one at a time and find the full cost only at the priced round. This lesson covers four mistakes that cause that result, and how to find each one in a cap table.

Mistake 1: a stack of SAFEs

Here is a founder with three post-money SAFEs. Before the SAFEs, the founders own 85% of 10,000,000 fully diluted shares. The option pool and the granted options own the other 15%.

Then the company raises a Series A: $10M at a $40M pre-money valuation, with an option pool of 10% after the round. Make a guess first.

Predict first

The founders own 85% before the SAFEs. The SAFEs sell 40%. Then the Series A sells 20% and tops up the pool to 10%. What do the founders own after the Series A?

Type a guess before you continue. A guess first, even a wrong one, makes the answer easier to remember.

Your guessSave my guess

Worked example · step 1 of 4

Three SAFEs, then a Series A

1. 1

   Add the SAFE percents

   Each post-money SAFE owns its amount divided by its cap. The percents add.

   10% + 15% + 15% = 40%

Show step 2Show all steps

The $3M from S3 cost the founders 10.3 percentage points after the Series A. Each SAFE looked like “only 10% to 15%.” Together, they sold 40% before the Series A.

A smaller Series A makes the result worse. With $5M at a $15M pre-money valuation, the round price is $0.73. In this round, the Safe Price of S3 is $1.06, which is more than the round price. Thus, S3 converts at the round price and gets more shares than its cap gives. The founders end with 31.01%.

Mistake 2: no running total

The post-money SAFE gives you the percent on the day that you sign. That advantage is useless if you do not write it down. YC writes: “Five $100k SAFEs at a $5M cap is 10% sold, not 2%.”

Keep a pro forma cap table, and update it on the day that you sign each SAFE. Write three numbers for each SAFE:

• The percent of this SAFE: amount ÷ post-money cap
• The total sold on all SAFEs
• The founders’ percent after the SAFEs

The SAFE stack calculator keeps this total for you. Do the same math in your own records too.

Work it out

Northwind already sold 12% on SAFEs. An angel offers $400K at an $8M post-money cap. Before the SAFEs, the founders owned 90%. What will the founders own after this SAFE?

Your answerCheck

A large SAFE round on a low cap is the extreme case. $2.5M on a $5M post-money cap sells 50%. Large rounds also change the choice of instrument. On Carta in 2025, priced rounds were more frequent than SAFE rounds above $4M. Investors in a large round also frequently ask for a board seat and other rights. The lesson on when to use a SAFE, a note, or a priced round compares the three.

Mistake 3: the cap as a boast

A founder signs a SAFE at a $30M cap and tells friends that the company is “worth $30M.” That statement is incorrect. Nobody bought shares at $30M. The cap is the highest price at which the SAFE converts. If the priced round sets a lower value, the SAFE converts at the lower round price.

A high cap also sets a high bar. The SAFE investors want the priced round to value the company well above the cap. If the next round values the company at or below the cap, the company can get a flat round or a down round. The SAFE investors then get no reward for the first risk. Thus, the next investors can ask why the company did not grow.

A round at the cap number also does not use the cap if it adds a new pool, because the round must also pay for that pool. In the lesson on conversion, an $8M cap had no effect at an $8.8M pre-money valuation, because the new pool was large.

Is a higher cap always better for the founders?

A higher cap sells less of the company today, so it is better for the founders in the SAFE round. But it makes the next round harder. The priced round must set a value well above the cap, or the company can get a flat round or a down round. A cap that the company can grow past is better than a record cap that it cannot.

Mistake 4: missing records

A SAFE is a short contract, but it is a security, and the law and the form set rules. At the priced round, the lawyers of the new investors examine each SAFE. Missing records can delay the closing. Keep these records for each SAFE:

• Board approval. The board of directors must approve the SAFEs before the company issues them.
• The signed form, with no hidden changes. The YC form tells you that the parties did not change it “except to fill in blanks and bracketed terms.” Put extra rights in a side letter.
• The wire. YC writes that a SAFE is not binding until the company receives the money. A bank fee can make the wire short. YC writes that this “almost never causes a real problem,” but “technically the investor owes any shortfall.”
• The investor’s status. If an investor is not accredited at the time of the priced round, the company can cancel the SAFE and repay the Purchase Amount.
• More money on a new SAFE. If an investor wants to invest more, YC recommends a new SAFE on the same terms, not a change to the first SAFE.
• The MFN dates. Record the date when each investor signed and the date when the money arrived. The MFN uses the later of the two dates.

YC’s “Send a SAFE” tool lets a founder or an AI agent prepare and send a SAFE. YC also writes: “Sending a SAFE emails a real investor and cannot be undone.” Examine every term yourself before you send one.

Other mistakes on the same list

YC names three more mistakes that occur frequently:

• Mixed instruments. Post-money SAFEs, pre-money SAFEs, and convertible notes on one cap table are difficult to calculate. In a sale, the notes come first, because they are debt.
• Pro rata letters for every investor. Each letter can make the priced round larger or the dilution larger. Slow investors can also delay the closing.
• MFN SAFEs before low-cap SAFEs. The MFN holder can select the low cap. Close the low-cap SAFEs first.

Find the errors

The widget shows two cap tables from founders. Each one has exactly three errors. Mark each line that you think is wrong, then check. Read the reason under each line that you marked.

Find the errors

Three errors in a SAFE cap table

Select each line that you think is wrong, then check your answers. Each spreadsheet has exactly three errors.

Spreadsheet

NorthwindPine Street

Ben sends this cap table to the board before the seed round. All three SAFEs are post-money SAFEs with a cap and no discount.

• Ada and BenCommon stock, 9,000,000 shares90.00%
• Option poolUnissued options, 1,000,000 shares7.75%
• Maple AngelsSAFE: $500K at a $5M post-money cap9.09%
• Birch VenturesSAFE: $1M at a $10M post-money cap10.00%
• Cedar CapitalSAFE: $300K at a $12M post-money cap2.50%
• Total sold on SAFEs10% + 10% + 2.5%22.50%
• Company valuationThe cap of our latest SAFE$12M

Check my answers

Test each line against the rules of this module: a post-money SAFE owns amount ÷ cap, SAFEs dilute the founders and not each other, and a cap is not a valuation.

Quiz · question 1 of 5

Test what you learned

A founder signed SAFEs for 10%, 15%, and 15%. The founder says: "Each SAFE was small, so my dilution is small." What is incorrect?

• AThe caps protect the founders from dilution
• BThe percents add to 40%, and the priced round dilutes the founders again
• CThe later SAFEs diluted the earlier SAFEs, so the total is less than 40%
• DNothing. Each SAFE is less than 20%.