About SAFE Note Calculator
The SAFE (Simple Agreement for Future Equity) Note Calculator helps founders and investors understand the equity implications of SAFE investments during future funding rounds. This tool calculates conversion scenarios based on valuation caps, discount rates, and future funding terms.
Understanding SAFE Notes
SAFE notes are investment instruments that allow startups to raise capital without immediately issuing equity or debt. Instead, the investment converts to equity during a future qualified financing round, with terms determined by the SAFE agreement's provisions.
Key SAFE Components
Valuation Cap:
Maximum effective valuation for SAFE conversion, protecting investors from excessive dilution in high-valuation rounds.
Discount Rate:
Percentage reduction from the next round's price, rewarding early investors for taking higher risk.
Conversion Trigger:
Usually a qualified financing round that determines when and how the SAFE converts to equity.
SAFE Conversion Mechanics
Valuation Cap Conversion
- Uses the lower of cap or round valuation
- Protects early investors
- Creates effective price per share
- Common in seed-stage investments
Discount Rate Conversion
- Applies percentage discount to round price
- Rewards early investment
- Simpler than valuation caps
- Often ranges from 10-30%
Pro Tips for Using SAFEs
For Founders:
- Track all outstanding SAFEs carefully
- Consider impact on future rounds
- Maintain clear cap table projections
- Communicate terms clearly to all stakeholders
For Investors:
- Understand conversion mechanics
- Review most-favored-nation clauses
- Consider pro-rata rights
- Model multiple conversion scenarios
Common SAFE Scenarios
1. Basic Conversion
When the next round's valuation is below the cap and no discount applies, the SAFE converts at the same price as the new investors.
2. Cap-Based Conversion
If the next round's valuation exceeds the cap, the SAFE converts at an effective price based on the cap, resulting in more shares than new investors receive for the same investment amount.
3. Discount-Based Conversion
The SAFE converts at a discount to the next round's price, regardless of valuation, giving early investors more shares per dollar invested.
4. Combined Cap and Discount
When both mechanisms are present, the SAFE holder benefits from the more favorable term between the valuation cap and the discount.
Key Considerations
Documentation:
Keep detailed records of all SAFE terms, including caps, discounts, and any special provisions.
Dilution Impact:
Model the impact of SAFE conversions on founder and existing investor ownership under various scenarios.
Legal Review:
Have experienced counsel review SAFE terms and ensure alignment with your overall fundraising strategy.
Remember that while SAFEs are designed to be simple, their impact on cap tables and future rounds can be complex. Always consult with legal and financial advisors when using SAFE notes, and use this calculator as part of your broader fundraising strategy planning.
