safe-vs-priced-round

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]].