Hong Life CalculatorsUnderstanding the SAFE conversion calculator — concept and principle
A SAFE (Simple Agreement for Future Equity) lets an investor give money to a startup now and receive shares later, usually at the next priced funding round. This calculator estimates how many shares the SAFE converts into, at what price per share, and the ownership the investor holds under a post-money valuation cap. Founders use it to model dilution; investors use it to check what their cheque will become. It works with any currency.
How it is calculated
- Cap price = valuation cap ÷ company capitalisation (shares)
- Discount price = priced-round share price × (1 − discount % ÷ 100)
- Conversion price = the lower of the cap price and the discount price
- Shares received = SAFE investment ÷ conversion price
- Ownership (post-money cap) = investment ÷ valuation cap × 100
The capitalisation figure should be the share count the SAFE defines. Under the standard post-money SAFE this includes existing shares, the option pool and the shares from converting SAFEs, but not the new money in the priced round.
The principle
The cap and the discount both reward the early investor for taking more risk. The cap guarantees a maximum price: however high the next round is priced, the investor converts as if the company were worth no more than the cap. The discount guarantees a price below what new investors pay. The investor gets whichever is better, which is why the calculator takes the minimum. With a post-money cap, the investor's percentage is fixed when the SAFE is signed (investment ÷ cap), which makes dilution easy to predict before the new round.
Worked example
- Investment = 500,000 USD, post-money cap = 6,000,000 USD, capitalisation = 5,000,000 shares.
- Cap price = 6,000,000 ÷ 5,000,000 = 1.20 USD.
- Discount price = 2.00 × (1 − 0.20) = 1.60 USD.
- Conversion price = min(1.20, 1.60) = 1.20 USD (the cap applies).
- Shares = 500,000 ÷ 1.20 = 416,667 shares; ownership = 500,000 ÷ 6,000,000 = 8.33%.
How to read the result
If the cap price is lower, the cap is "in the money" and the next round is priced well above the cap. If the discount price is lower, the round came in close to or below the cap. The 8.33% is ownership just before the new round; new investors' shares will dilute it.
Common mistakes
- Using only founders' shares as capitalisation, ignoring the option pool and other SAFEs.
- Applying a post-money formula to a pre-money SAFE, or the other way round.
- Assuming ownership stays at 8.33% after the priced round.
Frequently asked questions
What happens if there is no priced round?
The SAFE stays outstanding. Standard SAFEs also cover a sale of the company or dissolution, with their own payout rules.
Is a SAFE a loan?
No. Unlike a convertible note, a standard SAFE has no interest rate or maturity date.
Can a SAFE have only a discount and no cap?
Yes. Then it always converts at the discount price.
Sources: Y Combinator, Post-Money SAFE User Guide