SAFE Note Calculator

A SAFE, or Simple Agreement for Future Equity, is money given now for shares issued later, at the next priced round. It carries no interest and no maturity date, which is what separates it from a convertible note. Two terms decide what the investor ends up owning: a valuation cap, which sets a ceiling on the valuation used for conversion, and a discount, which takes a percentage off the round price. Where both are present the investor converts on whichever produces more shares. The instrument was created at Y Combinator, which publishes the standard documents openly, and it is now the common form for early-stage rounds in many markets.

Worked through on the example figures: a 100,000 SAFE with a 5,000,000 cap and a 20% discount, converting at a round valued at 8,000,000. The cap path converts at 5,000,000, giving 100,000 divided by 5,000,000, or 2.00%. The discount path converts at 8,000,000 less 20%, which is 6,400,000, giving 1.56%. The cap wins, so the investor takes 2.00%, worth 160,000 at the round valuation, a 1.60x paper markup on the 100,000 invested.

That multiple deserves a caveat the arithmetic cannot supply. It is simply the round valuation divided by the conversion valuation, 8 over 5, and it treats the headline round number as a real price for every share. Gornall and Strebulaev valued 135 large private companies from their legal filings and found reported post-money valuations averaging 50% above fair value, because a headline valuation assumes every share is worth as much as the newest preferred shares, which carry protections earlier shares do not. A markup at conversion is a paper figure until an exit turns it into cash.

Run it with sensible defaults

Using an investment of 100,000, a valuation cap of 5,000,000, a discount of 20% and a qualified round valuation of 8,000,000, the calculation returns 2.00%. The result panel also shows the effective conversion valuation of 5,000,000, which is the number that actually decides the outcome, along with the value of the resulting stake at the round and the multiple that implies.

The levers in this calculation

Only two inputs reach the headline percentage at any one time, and which two depends on which path wins. Ownership is the investment divided by the effective conversion valuation, so raising the investment raises ownership proportionally, while raising whichever valuation is binding lowers it by the same proportion. On the example figures the cap binds, so the discount and the round valuation change the supporting rows without moving the percentage at all. That stops being true at a round of 6,250,000, which is the cap divided by one minus the discount: above it the cap keeps binding, below it the discounted round price becomes the lower figure and the discount starts driving the answer. At a round of 6,000,000 the conversion valuation is 4,800,000 and ownership rises to 2.08%.

How the maths works

Two candidate conversion valuations are calculated: the cap, and the round valuation reduced by the discount. The lower of the two is used, since a lower conversion valuation buys more of the company for the same money. Ownership is the investment divided by that figure, expressed as a percentage. The stake value is the round valuation multiplied by that ownership share, and the multiple is that value divided by the investment. Where the cap is entered as zero the SAFE is treated as uncapped and only the discount path applies, which on the example round gives 1.56% instead of 2.00%.

What the calculation leaves out matters as much as what it includes. Other SAFEs converting in the same round dilute each other, and this tool sees only one. Option pool top-ups agreed as part of the round dilute everyone converting. Whether the percentage survives the round intact depends on whether the SAFE is pre-money or post-money in form, a distinction the arithmetic here cannot see, since it simply divides by the valuation entered. And the calculation assumes conversion happens at all, which is the assumption an investor is really taking a position on.