Understanding the Difference Between Pre-Money and Post-Money SAFEs

Introduction

Startup fundraising is filled with terms that sound similar but have real implications for your cap table. One of the most commonly misunderstood distinctions is between pre-money SAFEs and post-money SAFEs. Both are tools for raising capital without setting a valuation today — but how they impact ownership and dilution is very different.

First, What Is a SAFE?

A SAFE (Simple Agreement for Future Equity) is a form of convertible security that allows investors to invest in your company today, with the promise of receiving equity in the future — usually when a priced round occurs. Created by Y Combinator in 2013, SAFEs are simpler and faster than traditional convertible notes because they don't accrue interest or have a maturity date.

Now, let's get into the difference that really matters.

Pre-Money SAFEs vs Post-Money SAFEs

Pre-Money SAFEs (2013 Version)

Key idea: Investor ownership is calculated before the new money from the priced round comes in.

How it works:

In a pre-money SAFE, the SAFE investor's equity is based on the company's pre-money valuation at the time of the next financing round

This means:

They convert before the new money is counted.
The SAFE investor ends up owning less if more SAFEs were raised later.
You can't accurately predict the dilution caused by pre-money SAFEs until the priced round.

Pros:

Simple and founder-friendly
Encourages quick closes without intense valuation negotiation

Cons:

Hard to model dilution
Earlier investors may be unintentionally diluted by later SAFE holders
Creates uncertainty in the cap table

Post-Money SAFEs (2018 Update)

Key idea: Investor ownership is calculated after all prior SAFEs have converted.

How it works:

In a post-money SAFE, the SAFE investor receives a fixed percentage of the company — calculated after the SAFE investment, but before the new money in the priced round. This creates:

A predictable ownership outcome for investors
Clearer modeling of dilution
Dilution from SAFEs falls entirely on the founders and existing holders

Pros:

Clear and predictable dilution
Easier cap table modeling
More transparent for both founders and investors

Cons:

Can be more dilutive to founders than expected if many SAFEs are raised
Founders bear all dilution from the SAFEs

A Simple Example

Let's say:

You raise $1M on a SAFE with a $10M valuation cap
Later, you raise a $5M Series A at a $15M pre-money valuation

With a pre-money SAFE, the investor gets:

$1M / $10M = 10% ownership before the Series A
After Series A, their ownership is diluted by the $5M of new investors

With a post-money SAFE, the investor gets:

A locked 10% ownership after all other SAFEs convert
The $5M Series A dilutes everyone else, not the SAFE holder

So Which Is Better?

For founders: Pre-money SAFEs seem attractive upfront, but can lead to unpredictable and painful dilution.

For investors: Post-money SAFEs are fairer and more transparent — they know exactly what percentage they'll own.

Because of this clarity, post-money SAFEs have become the new standard in most early-stage financings.

Final Thoughts

The trend has been to move away from pre-money SAFEs and instead use post-money SAFEs. They are both excellent structures when used properly.

If you're raising on SAFEs — especially multiple SAFEs over time — it's critical to understand how they impact your ownership. Don't treat SAFEs as "not real equity." They are equity, and when they convert, they can take a larger bite out of your cap table than expected.

Always model the dilution, ideally using a cap table tool or working with an expert. Your future self (and co-founders) will thank you.

If you'd like to talk with Bob about cap tables, you can connect with him here – because every point matters.