1. Early-Stage Startup Guide
  2. SAFEs & round instruments
Deep dive · Funding instruments

SAFEs, notes & priced rounds

The three ways early-stage startups raise money, what every term on a SAFE means, and how much of your company each one really costs. With interactive calculators and worked examples.

01 · THE THREE INSTRUMENTS

Three ways to raise your first rounds

Almost every pre-seed and seed round uses one of these. They differ on one big question: do you set a price for your company now, or later?

Most common at pre-seed

SAFE

A Simple Agreement for Future Equity. The investor pays now and gets shares later, when you raise a priced round. It is not debt.

Best forPre-seed and seed rounds that need to close fast, with low legal cost.
Watch outSeveral SAFEs at different caps add up to more dilution than each one looks like.
  • Sets a price nowNo, a cap
  • DebtNo
  • InterestNone
  • Maturity dateNone
  • Speed & legal costFast, low
Common for bridges

Convertible note

A short-term loan that turns into shares at your next priced round. It earns interest and has a date when it falls due.

Best forBridge rounds, or investors who want the protection of debt.
Watch outThe maturity date. If you have not raised by then, the note is due or has to be extended.
  • Sets a price nowNo, a cap
  • DebtYes
  • InterestYes, adds to shares
  • Maturity dateYes
  • Speed & legal costFast, low
Larger seed & Series A

Priced equity round

You and a lead investor agree a valuation and sell preferred shares at a set price per share, usually with more legal work and governance.

Best forBigger rounds with a lead investor who sets the terms.
Watch outTerms beyond the price: liquidation preference, option pool and board seats.
  • Sets a price nowYes
  • DebtNo
  • InterestNone
  • Maturity dateNone
  • Speed & legal costSlower, higher
02 · SAFE TERMS IN PLAIN ENGLISH

Every term on a SAFE, with an example

Most SAFEs only have a few moving parts. Know these six and you can read almost any SAFE an investor sends you.

Valuation cap

The highest valuation your SAFE converts at. If your next round is priced above it, SAFE investors convert as if it were priced at the cap.

Example: $100K on a $5M post-money cap gives the investor 2% before the next round.

Discount

A percentage off the price new investors pay in your next round, often around 20%. The investor gets whichever is better: the cap or the discount.

Example: New investors pay $1.00 a share. With a 20% discount, the SAFE converts at $0.80.

Post-money vs pre-money

A post-money SAFE, the modern default, fixes the investor's ownership at the amount divided by the cap. New SAFEs then dilute the founders, not earlier SAFE holders.

Example: $500K on a $5M post-money cap is 10%. On a $5M pre-money cap it is about 9.1%.

MFN (most favored nation)

If you later give another SAFE investor better terms, this investor can switch to them. Most common on SAFEs without a cap.

Example: An uncapped MFN SAFE, then a later SAFE at an $8M cap: the first investor can take the $8M cap too.

Pro rata rights

The right to invest in your next round to keep their ownership percentage. On SAFEs it is often given in a separate side letter.

Example: An investor who owns 5% can buy 5% of your next round's new shares.

Conversion & exits

SAFEs convert at your next priced equity round. If you are acquired first, the investor usually gets their money back or what their shares are worth, whichever is greater.

Example: A $100K SAFE in a company sold before any priced round is paid out first, before common shares.
03 · INTERACTIVE

Run your own numbers

Two quick calculators: what one SAFE converts into, and what happens when you stack several.

Calculator 1

What will my SAFE convert into?

Discount

of your company goes to this SAFE when it converts, before the new money comes in.

valuation it converts at

Simplified estimate for one post-money SAFE. It leaves out option pool changes and other SAFEs. Talk to a startup lawyer before you sign.

Calculator 2

The SAFE stack: how small SAFEs add up

Each post-money SAFE's share is its amount divided by its cap. The founders pay for all of them, then the priced round dilutes everyone again.

04 · WORKED EXAMPLES

Three rounds, worked through

The typical pre-seed SAFE

$500K on a $5M cap

10%
$500K ÷ $5M = 10%

This is the median pre-seed founder in LvlUp's data from 26,000+ applications: a $500K raise at a $5M valuation.

See our pre-seed data →
When the discount wins

$250K, $10M cap, 20% off

3.9%
Round at $8M pre-money
$8M × 0.8 = $6.4M
$250K ÷ $6.4M = 3.9%

The round is priced below the cap, so the 20% discount gives the investor the better price.

Note vs SAFE

$200K, $4M cap, 18 months

5.6% vs 5%
Note at 8% interest: $200K + $24K = $224K
$224K ÷ $4M = 5.6%
SAFE: $200K ÷ $4M = 5%

With example terms, the note's interest turns into extra shares. The longer it runs, the more it costs.

05 · OUR VIEW

How LvlUp looks at SAFEs

We write a lot of first checks, and these are the habits we see in founders who keep a clean cap table two rounds later.

How we invest

Standard SAFEs, no surprises

Our First Check Fund invests $1K to $10K on standard SAFEs at the same valuation as the round. No special clauses, no preferred terms.

Inside the First Check Fund →
Always ask

"Is that pre-money or post-money?"

A $2M check at $10M pre-money buys 16.7%. At $10M post-money it buys 20%. It is one of the cheapest negotiations you will ever have.

How valuations actually work →
Model the stack

Update your cap table with every SAFE

All your SAFEs convert at once, each at its own cap. Model the fully diluted cap table every time you add one, not just before the priced round.

The hidden dilution in stacking SAFEs →
Pick the right cap

Set up your next round, not the highest number

A cap that is too high raises the bar for your next round. Choose the one that lets you clear your next milestone comfortably.

Why down rounds happen →
Keep it documented

Every instrument in your data room

Keep every SAFE, note and option grant in your data room, with conversion assumptions written down, so investors never need a guided tour.

The data room nobody prepares →
Know the real cost

Compare against non-dilutive options

When spend ties straight to revenue, like inventory, revenue-based financing can cost less than selling equity.

Non-dilutive financing →
FAQ

SAFE & round instrument questions

THE GUIDE MAP

Back to the Early-Stage Startup Guide

This deep dive is one module of our guide to building and funding an early-stage startup. Pick up where you are.

Ready for a first check?

Raise on clean terms

Our First Check Fund backs founders from the idea stage with standard SAFEs and decisions in under a week.

Apply for funding →First Check Fund