Deal Terms
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Quick Answer
The original Y Combinator SAFE variant where the valuation cap represents the pre-money valuation, meaning ownership percentage depends on total capital raised across all SAFEs.
The Pre-Money SAFE is the original version of Y Combinator's Simple Agreement for Future Equity, used from its introduction in 2013 until the post-money version became standard in 2018. Under a pre-money SAFE, the valuation cap represents the company's value before including the SAFE investments, meaning the investor's ownership percentage depends on the total amount of capital raised across all SAFEs and convertible instruments—information the investor may not know at the time of their investment. This created uncertainty for both founders and investors: founders could not predict exactly how much dilution they were accepting until all SAFEs were issued, and investors could not determine their ownership until they knew the full SAFE stack. Pre-money SAFEs are less commonly used today but still appear in some angel rounds and in jurisdictions where the post-money SAFE has not yet become standard. Understanding pre-money SAFE mechanics remains important for evaluating companies that raised earlier rounds using them.
In Practice
A founder raises $1 million via pre-money SAFEs at a $4 million cap. The investor's ownership at conversion is $1M / ($4M + $1M) = 20%. But if the founder had only raised $500K on the same $4M pre-money cap, the investor's ownership would be $500K / ($4M + $500K) = 11.1%. The total amount raised changes everyone's ownership—a feature that post-money SAFEs eliminated by fixing ownership at investment time.
Why It Matters
While mostly replaced by post-money SAFEs, pre-money SAFEs still exist on many company cap tables from earlier rounds. Investors and founders should understand the difference because pre-money SAFEs create a 'shared dilution' effect where additional SAFEs dilute existing SAFE holders, not just founders. This distinction matters significantly for cap table modeling and dilution analysis.
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The Pre-Money SAFE is the original version of Y Combinator's Simple Agreement for Future Equity, used from its introduction in 2013 until the post-money version became standard in 2018.
Understanding SAFE Pre-Money is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
SAFE Pre-Money falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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