| name | safe-vs-priced-round |
| description | Use when a founder is choosing how to structure a raise. Triggers on "SAFE vs priced round", "should I use a SAFE", "valuation cap vs discount", "post-money SAFE", "convertible note", "when to do a priced round", "MFN clause". Explains the instruments and their real dilution consequences. |
SAFE vs Priced Round
The instrument you raise on decides how much you dilute, when, and how much
control you trade — often more than the headline valuation does. Founders who
treat the SAFE as "free money now" get a nasty surprise at the priced round.
This skill makes the choice deliberate.
When to use this skill
Use it during [[fundraising-stage-selector]] when sizing the round and before
signing anything. Model every choice through [[cap-table-manager]] so the
dilution is real, not abstract.
The instruments
SAFE (Simple Agreement for Future Equity)
- No interest, no maturity, converts to equity at the next priced round.
- Fast, cheap, standard (Y Combinator post-money SAFE). Dominant at pre-seed and
seed.
- Post-money SAFE: the investor's percentage is fixed at signing; founders
absorb the dilution of later SAFEs and the new-round pool. This is the common
modern form — know that you dilute around it.
- Pre-money SAFE (older): SAFE holders dilute each other; murkier math.
Convertible note
- Like a SAFE but it is debt: carries interest and a maturity date. Rare now
outside specific situations; the maturity date is a real risk if the next
round slips.
Priced equity round
- You sell shares at an agreed valuation now. Sets a real price, a board seat,
and full terms (preferences, protective provisions). More legal cost and time.
- Standard at Series A; increasingly common at larger seeds.
The SAFE terms that decide your dilution
- Valuation cap: the maximum valuation at which the SAFE converts. Lower cap
= more dilution for you, more upside for the investor. The most negotiated
term.
- Discount: a percentage off the next round's price (typically 10-20%).
- Cap vs discount: investors take whichever is better for them at
conversion. Model both.
- MFN (most-favored-nation): a SAFE holder gets the best terms you later
grant. Stacking MFN SAFEs can quietly ratchet up everyone's terms.
Choosing
- SAFE when: speed matters, you are pre/early-seed, you have strong investor
demand and want to avoid setting a price too early.
- Priced round when: you have a lead writing a large check, you want a clean
cap table and a real valuation, or stacked SAFEs are getting hard to model.
Watch the stacking trap: several uncapped or high-cap SAFEs feel painless
until they all convert at the Series A and reveal you sold more than you thought.
Always model the fully-converted table before signing the next one.
Anti-patterns
- Raising on a cap so low it craters your ownership at conversion.
- Treating SAFE money as non-dilutive because no shares moved yet.
- Stacking SAFEs without modeling combined conversion.
- A convertible note whose maturity hits before your next round.
Deliverable
A recommendation (SAFE / note / priced) with the reasoning for this stage, the
specific terms to seek and to resist (cap, discount, MFN), and a fully-converted
dilution model for the chosen path. Carry terms into [[term-sheet-negotiation]].
