How a SAFE actually converts
A SAFE is not equity. It is a contract that converts into equity at a future priced round, at whichever of two prices is better for the holder: the price implied by the valuation cap, or the round price less the discount. Modelling that "whichever is lower" condition is the entire exercise, and it is where most founder spreadsheets get it wrong.
The cap price is the valuation cap divided by the pre-money share count. The discount price is the Series A price per share multiplied by one minus the discount rate. The SAFE converts at the lower of the two, which is why a SAFE with both a cap and a discount effectively always takes the better of the two for the investor.
Cap price = Valuation cap ÷ Pre-money shares
Discount price = Series A price per share × (1 − discount %)
Conversion = MIN(cap price, discount price)
Shares issued = SAFE amount ÷ conversion priceThe option pool shuffle
Investors typically require the option pool to be topped up to 10–15% post-money, and they require that top-up to be created pre-money. That means the pool dilutes founders and existing holders, not the incoming investor — even though the pool exists to fund hiring that will grow the company the investor is buying into.
This is why the "effective pre-money valuation" is lower than the headline. On a $24M pre-money with a $6M raise and a 5% pool top-up created pre-money, the founder ownership after closing is materially lower than a simple $24M/$30M calculation suggests. The workbook models the pool as a pre-money line so the effect is visible.
| Scenario | Pool top-up | Founder ownership post-A |
|---|---|---|
| No top-up | 0% | Highest |
| Investor-required top-up pre-money | +5% | Lower by ~4 points |
| Aggressive top-up pre-money | +10% | Lower by ~8 points |
| Top-up post-money (rare) | +5% | Shared with the investor |
The dilution walk: where founder ownership actually goes
Founders are consistently surprised by their post-Series A ownership, because dilution accumulates across events that each looked modest: the initial option pool, seed SAFEs, a bridge, the Series A pool top-up, then the Series A itself. Modelling the walk from incorporation makes each step visible and comparable.
A typical progression for a company with a $30M post-money Series A: founders begin at 100%, the initial pool takes 10%, seed SAFEs take 12–18%, the Series A pool top-up takes another 4–6%, and the Series A investor takes 20%. Founders land near 50%, often below it.
- Model every conversion event in sequence, not in aggregate.
- Track founder ownership after each event so the cumulative effect is obvious.
- A 51% founder stake is a control threshold worth protecting in early rounds.
- Estimate the dilution of the next round now — the round after this one is already visible.
Five cap table mistakes that cost real ownership
Cap table errors are expensive because they are discovered at the worst possible moment — during diligence, when the company has the least leverage. These are the ones that recur.
- Ignoring the option pool top-up because it was not in the term sheet yet. Assume 10–15% post-money.
- Treating a valuation cap as a valuation. A $10M cap on a $30M round does not give the SAFE holder a $10M valuation — it sets the price, and the shares issued depend on the amount invested.
- Forgetting convertible notes with interest, which accrue and convert at a higher principal than originally issued.
- Missing the pre-money versus post-money distinction on SAFEs. Post-money SAFEs give the investor a fixed percentage.
- Not tracking the difference between issued shares and fully diluted shares, which produces two different ownership percentages for the same holder.
How to use this tool
- Enter founder shares and the option pool. Start from the current issued shares and the existing pool. Then set the new pool top-up — assume 10–15% post-money even if the term sheet has not specified it yet.
- Load every SAFE and note. Amount, valuation cap, discount and whether it is pre-money or post-money. Include accrued interest on notes in the principal amount.
- Set the Series A terms. Pre-money valuation and investment amount. The price per share is derived from these and the pre-money share count including the pool top-up.
- Download and read the dilution walk. The workbook shows ownership after each event and estimates the next round’s dilution, so you can negotiate the pool top-up with the full picture in front of you.
What is inside the download
A fully diluted shareholder ledger with ownership formulas, a SAFE conversion model that applies cap price versus discount price per instrument, and a dilution walk from incorporation through the Series A close.
Shareholder Ledger— a separate worksheet incap-table-and-safes.xlsx.SAFE Conversion Model— a separate worksheet incap-table-and-safes.xlsx.Post-Series A Dilution— a separate worksheet incap-table-and-safes.xlsx.