SAFEs and convertible notes on a cap table

Record the agreement before there is a share count

A SAFE is a simple agreement for future equity. It is not an issued share certificate. Convertible notes are debt instruments with conversion terms and can carry interest and maturity dates. Y Combinator’s original SAFE explanation describes the distinction between its SAFE and convertible debt.

Before conversion, retain the holder, investment amount, agreement date, and conversion terms as an instrument record. In Cap Table, select SAFE or Note when issuing a security. These instruments are listed separately from the outstanding and fully diluted ownership share counts until they convert.

Understand valuation caps and discounts

A valuation cap affects the price used for conversion under the agreement’s capitalization definition. A discount reduces the financing price used by that instrument. If both are present, read the agreement to determine how they interact; do not automatically apply one and then the other.

Consider an illustrative discount-only instrument with $100,000 eligible to convert and a 20% discount to a $2 financing price. Its conversion price is $2 × 80% = $1.60, giving 62,500 shares. This assumes no cap, interest, additional adjustments, or rounding problem.

A cap is not a promise of the price someone will pay for the company at a sale. It is a term in the instrument’s conversion calculation.

Distinguish pre-money and post-money SAFEs

Pre-money and post-money SAFE caps use different capitalization definitions. Under a straightforward cap-based post-money SAFE example, a $500,000 investment at a $10,000,000 post-money cap represents 5% before the new money in the priced round dilutes it. This is not a guaranteed final post-round percentage.

The round valuation, other terms, and pool changes can affect the result. Y Combinator publishes SAFE forms and a user guide with conversion examples, including cases where the estimated ownership changes. Check the exact form being modeled.

In Cap Table, set the SAFE’s valuation-cap type to match the agreement. Enter a discount as a percentage and leave the cap empty only for an uncapped instrument. A note additionally has fields for simple interest and maturity.

Review conversion and interest explicitly

Interest can change the balance eligible to convert. For an illustrative note with $100,000 principal and 8% simple annual interest, exactly one year produces $8,000 interest. If the terms convert principal and that interest, the conversion balance is $108,000. The contract’s dates, day-count convention, and treatment of interest still need to match the calculation.

Record the signed terms, then use Round modeling to review the proposed conversion certificates and ownership. Saving a model does not convert the instruments. The close-round workflow applies the reviewed financing records.

Review sale outcomes separately: the app’s exit model treats notes as debt repayments and evaluates SAFEs under its modeled exit alternatives. A financing conversion example does not establish what an instrument receives in an acquisition.