SAFEs: What’s the difference between a Post-Money v. Pre-Money Valuation Cap SAFE?
This week’s question: What’s the difference between a Post-Money SAFE and a Pre-Money SAFE and why does it matter so much for founders?
Our answer: The original form of SAFE was a Pre-Money SAFE; this converted based on the startup’s valuation and additional SAFE issued before new money was added in the priced round. In practice, this made it very difficult for founders to predict how much dilution they would experience because each additional SAFE changed the ownership math for every other SAFE so as more SAFEs were stacked founders often ended up owning far less than they expected. This issue was addressed a few years later with the Post-Money SAFE, which instead converts based on the fully-diluted post-money valuation, making it far easier to know exactly how much equity each SAFE holder will receive. In a Post-Money SAFE, each investor’s ownership percentage is locked in at signing and does not change based on how many SAFEs are raised afterward. While this gives founders and investors more clarity on ownership and dilution, it also shifts more dilution risk onto founders if they raise too many SAFEs at low post-money valuation caps. Knowing the differences between these two versions is critical because it determines how predictable your dilution and cap table will be to manage, and how much ownership your startup is actually giving away when you raise early capital.
Key Considerations:
Post-Money SAFEs are Standard. Post-Money SAFEs have become the standard when discussing SAFEs, so much so that if you just hear a proposal for a “valuation cap” SAFE you can safely assume it is a “post-money” valuation cap. Post-Money SAFEs have become so dominant that is also common for new money investors in a priced round to require that any Pre-Money SAFEs are converted to Post-Money SAFEs anyway before closing.
Dilution Predictability. For dilution, the core tradeoff is simple in that Post-Money SAFEs provide predictable ownership and dilution for investors and founders, while Pre-Money SAFEs provide less dilution pressure, but the resulting dilution is unpredictable and potentially messy. If you want relatively cleaner modeling and easier cap table management (particularly if you have multiple SAFEs), Post-Money SAFEs reduce surprises. However, if you want to avoid giving away fixed chunks of your startup too early, Pre-Money SAFEs can be more forgiving (at least in the short-term).
Post-Money SAFE Example. To demonstrate the simplicity of modeling Post-Money SAFEs, if your startup issues a $1M SAFE at a $10M post-money cap then that provides the investor with 10% of the startup. If your startup raises another $1M SAFE the next day, that additional SAFE takes another 10%. As a result, total dilution is 20% with both SAFEs.
Why It Matters.
At first glance, “pre-money vs post-money” may seem like a technical distinction, but it profoundly affects how much equity a startup has allocated to investors and is a strategic decision about dilution, clarity and the long-term health of your cap table. Post-Money SAFEs make it simple to know exactly what dilution you’re taking, but if you sign too many low-cap SAFEs you may give away too much of your startup before you ever raise a priced round. Pre-Money SAFEs may feel founder-friendly in the moment because they dilute all investors together, but they create opaque ownership math, messy cap tables and possible friction with new money investors who may insist on converting all SAFEs to post-money equivalents anyway. When you understand how each structure works, choose consistently and model dilution regularly, you can raise quickly, keep investors aligned and maintain far more control over your startup’s ownership. Founders who understand the differences make far better decisions about how to raise early capital.
