SAFE Note — What to Check Before Signing

# SAFE Note — Pre-Sign Checklist

**Investor:** [Name]
**Investment amount:** $[X]
**Pre-/post-money cap:** $[Y]
**Discount:** [Z]%
**Document version:** [YC SAFE post-money template Aug 2022 / other]
**Date:** [DATE]

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## Use the canonical template

The single most common founder mistake on SAFEs is signing a hand-modified Word document. The right starting point:

- **YC's canonical SAFE templates** (free, public, lawyer-reviewed): https://www.ycombinator.com/documents
- **Clerky / Atlas / SeedLegals** generate SAFE documents from the canonical templates
- A bespoke SAFE drafted by an investor's lawyer should be diffed against the canonical to spot non-standard changes

If the SAFE in front of you is not the canonical template, ask why. Most legitimate investors use it; deviations are usually their lawyer's preference, occasionally aggressive terms hidden in the diff.

## 1. Cap structure

- [ ] **Cap value confirmed.** What's the cap? Does it match what you discussed verbally?
- [ ] **Post-money vs pre-money cap.** Post-money is the YC default since 2018 — investor ownership at conversion is fixed regardless of subsequent SAFEs. Pre-money lets later SAFEs dilute the earlier investor. **Always model the dilution math with the [Dilution Calculator](/tools/dilution-calculator) before signing.**
- [ ] **No-cap?** Rare; usually only for friends-and-family rounds or follow-on from existing investors. Investor's downside cap is removed; they convert at the full priced-round price.

## 2. Discount

- [ ] **Discount rate confirmed** (typically 15-25%; 20% is most common).
- [ ] **Discount applies how?** Investor converts at the LOWER of (a) cap-implied price, OR (b) priced-round price × (1 − discount). Modern SAFEs are "cap OR discount" — investor takes whichever is more favorable.
- [ ] **No discount?** Acceptable if the cap is low enough to do the work. Both at once is normal.

## 3. MFN (Most-Favored Nation)

- [ ] **Is there an MFN clause?** Means: if a later SAFE has better terms (lower cap, higher discount), this investor's terms automatically adjust to match.
- [ ] **MFN is becoming standard at seed.** Investors expect it; founders usually accept.
- [ ] **Risk:** if you raise multiple SAFEs across a long window and accidentally write better terms on one, MFN cascades to all earlier ones — usually surprises founders during diligence.

## 4. Pro-rata rights

- [ ] **Pro-rata included?** Default: in the YC post-money SAFE, pro-rata is a separate side-letter, not in the SAFE itself. Investors often ask for it; you can grant or refuse.
- [ ] **Pro-rata cap?** Cap the pro-rata so it doesn't apply forever — typically "next priced round only" or "rounds up to Series B".

## 5. Conversion mechanics

- [ ] **Trigger event.** SAFE converts to equity on: priced equity financing, change of control, IPO. Confirm the language matches the YC template.
- [ ] **Liquidation preference at conversion.** The YC SAFE converts into a special class of preferred (Safe Preferred Stock) with 1× liquidation preference. Non-canonical SAFEs sometimes inflate this.
- [ ] **Dissolution event payout.** If the company dissolves before conversion, SAFE holders get their money back ahead of common shareholders.

## 6. Common founder mistakes (don't do these)

- Signing a SAFE without modelling the dilution at the next priced round — use the [Dilution Calculator](/tools/dilution-calculator)
- Treating SAFEs as "free money" — they convert; you've sold equity at the cap valuation
- Stacking 5+ SAFEs with different caps before a priced round — the cap-table math gets ugly fast
- Accepting non-canonical SAFEs without legal review
- Forgetting that SAFEs aren't debt — there's no maturity, no interest, but no investor protection either

## 7. Before you sign

- [ ] Modelled dilution at the next priced round
- [ ] Reviewed with startup-specialist lawyer
- [ ] Verified the document is the canonical YC template (or diffed against it)
- [ ] Confirmed cap, discount, MFN, pro-rata in writing with the investor
- [ ] Updated the cap table to include the new SAFE

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**Educational only — not legal advice.** SAFE notes are simple in concept but the implications compound across rounds. Always involve a startup lawyer in the review.