Post-Money Safe Does Not Mean Founders Equity is Safe

August 22, 2025  |  By Michael Habib

For many, the idea of investing in a startup is associated with the deals and negotiations as seen on Shark Tank. Though Shark Tank can certainly give the impression that early-stage startups sell equity right away, that’s rarely the case. Most startups begin with a convertible round—a financing round that uses instruments like Safes (Simple Agreements for Future Equity) or convertible notes, which promise equity in the future in exchange for investment today.

Since Y Combinator introduced the Safe in 2013, it has become the go-to instrument for early-stage financing—and for good reasons.

First, a Safe allows founders to give up zero equity on the day of investment. This means they maintain full control of their startup. Dilution only occurs later, when the Safes convert into equity. 

Second, a Safe allows founders to delay placing a valuation on their companies.  This is critical since raising a future round at a lower valuation—a “down round”—signals poor performance, may trigger anti-dilution protections, and, most importantly, forces founders to sell their companies for less. By using Safes, founders can raise capital without chasing inflated valuations.

Finally, Safes are both simple and inexpensive. A founder can visit Y Combinator’s website, download the Safe, and fill in the blanks all in one sitting. That said, I still strongly recommend working with a lawyer for security exemptions. When it comes to founder equity, it’s crucial to ensure that it’s protected, distributed, and diluted properly. Spending a little up front to guarantee your Safe is executed correctly can quite literally save you millions at exit.

How Does a Safe Work?

A Safe is a promise of future equity in exchange for an investment today. Since the company does not have a valuation at the time of the Safe and won’t receive one until its first priced round, investors want to protect their upside and ensure they’re compensated for the early risk.

To do this, Safes include either a valuation cap, the maximum valuation at which their investment will convert, or a discount, a percentage reduction applied to the priced round’s share price. Y Combinator previously offered a Safe with both a cap and discount, but removed that version due to its complexity.

The Rise of the Post-Money Safe

Since Y Combinator introduced the post-money Safe in 2018, it has quickly become the preferred convertible instrument for early-stage financings, accounting for 83% of all Safes issued in 2024, according to Carta. Last year at Vela Wood, we saw 62% of convertible rounds use the post-money Safe, with an average raise of $2.47 million—158% higher than the average convertible note round (see our 2024 Venture Deal Report). Since their debut, post-money Safes have proven that they’re here to stay. So, let’s make sure you understand how they work. 

Understanding Pre-Money vs. Post-Money Valuations

To understand a post-money Safe, you first need to understand the difference between pre-money and post-money valuations.

Let’s break it down with an example. Imagine you own Sammy Soda, the most delicious, crisp, and refreshing soda on the market. Sammy Soda is worth $4 million today. That $4 million is your pre-money valuation—the value of your company before the new investment.

Now, suppose you raise $1 million. Your post-money valuation becomes $5 million: your $4 million company plus the new $1 million in cash added to the balance sheet.

Calculating Ownership Percentage

To calculate investor ownership percentage, use this simple formula:

Ownership % = Investment ÷ Post-Money Valuation

Example:

If I invest $1M into Sammy Soda with a $4M pre-money valuation, my ownership is:
$1M ÷ ($4M + $1M) = 20%

But if I invest $1M into Sammy Soda with a $4M post-money valuation, my ownership is:
$1M ÷ $4M = 25%

Understanding this concept is crucial for grasping the concept of post-money Safes.

Post-Money Safes

With a post-money Safe, ownership is based solely on the post-money valuation cap. That means the investor’s ownership percentage is fixed and clear, regardless of how many Safes are issued afterward.

Let’s go back to Sammy Soda one more time. If I invest $1 million into a post-money Safe with a $4 million cap, my ownership is 25%. Now, let’s say Sammy Soda raises another $1 million in additional Safes. Under the post-money Safe structure, I still get 25%. Additional convertibles don’t dilute or impact me. On occasion you will still see a pre-money Safe in the wild (which uses a pre-money cap vs post-money) but industry standard is to use the YC terms, which is what I would recommend. 

Warning

While a post-money Safe is great for investors, it can pose challenges for founders. If both I and investor A put in $1 million and we each get 25%, now two investors collectively own 50% of the company. That’s significantly more dilution than with a pre-money Safe, where the founder would have retained 66.67% instead of 50%.

And that’s not all—Safes convert into equity during a qualified financing event, which means you’re selling even more equity. Let’s say you sell 20% in a priced round and add a 10% employee option pool. In a single day, a founder can go from owning 100% to 35%.

Therefore, it’s crucial for founders and investors to track the equity that is being given away via post-money Safes. Founders often have to give up equity in order to grow their company, but it’s done gradually and in a way that makes their equity more valuable each round. As an investor, you want founders to retain enough equity so that they feel properly rewarded for their work and stay committed to the company.

Still Confused? We Built a Model

If this still feels abstract or hard to visualize—don’t worry. We’ve built a model that helps you simulate a post-money Safe round, a seed round, and a Series A side-by-side so you can understand the ownership impact and dilution in real time. You can check out the Vela Wood Pro Forma Model here.

About the Author(s)

Michael Habib

Michael Habib is a Venture Associate at Vela Wood. His role includes assisting with the management of firm investment funds, providing operational support for VDub Lab ventures, and conducting research and analysis for VW’s venture practice.