What is the difference between a post-money and pre-money SAFE?
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Short answer
The difference is what the valuation cap is measured against. In a post-money SAFE, the cap includes the money raised on SAFEs, so each investor's ownership is fixed at signing and every additional SAFE dilutes the founders. In a pre-money SAFE, the cap excludes the SAFE money, so SAFE holders dilute each other and the final percentages aren't known until the round.
What do pre-money and post-money mean?
Pre-money valuation is the company’s value before new money comes in. Post-money valuation is pre-money plus the new money. For a SAFE, the question is whether the valuation cap is measured before or after the SAFE money itself.
Y Combinator’s original SAFE used a pre-money cap. Its current standard, introduced in 2018, uses a post-money cap. Most SAFEs founders see today, including Canadian adaptations such as the one Torys LLP publishes, are post-money.
Who bears the dilution?
| Post-money SAFE | Pre-money SAFE | |
|---|---|---|
| Cap measured | After SAFE money, before the priced round | Before SAFE money |
| Investor’s ownership at signing | Known: roughly amount divided by cap | Unknown until all SAFEs convert |
| Effect of raising more SAFEs | Dilutes founders and other common holders, not earlier SAFE holders | Dilutes everyone, including other SAFE holders |
| Who benefits from certainty | Investors, and founders who model carefully | Founders, slightly, on paper |
Can you show an example?
Two investors each put $500,000 on SAFEs with a $10,000,000 cap, and nothing else is outstanding.
- Post-money. Each owns about 5% just before the priced round, 10% together. If you raise another $1,000,000 on the same cap, those new investors take about 10% more, and the founders absorb it. The first two stay at about 5%.
- Pre-money. The cap price is based on the shares outstanding before the SAFEs, so each investor’s percentage shrinks as more SAFE money comes in. Together they end up with somewhat less than 10% on the first $1,000,000, and the founders give up a bit less.
Both then get diluted by the priced round’s new money and any option pool increase. Model your exact documents on your cap table.
Which should I use?
Post-money is now the default, and investors may resist anything else. Its real advantage is clarity: founders can calculate exactly how much of the company they’ve sold across every SAFE. The risk is the same clarity ignored. Founders who keep raising small SAFEs without adding them up are often surprised at conversion. See what is dilution?
Does the pool count?
On the post-money SAFE, the company capitalization used for the cap includes issued options, promised options and the existing unissued pool. An increase to the pool made in connection with the priced round generally isn’t included, except to the extent promised options exceed the existing pool. Increasing the pool for the round therefore tends to dilute founders, not SAFE holders. See what is an option pool shuffle?
Anything Canada-specific?
The math is the same. Use a form adapted for a Canadian corporation, confirm a prospectus exemption for each investor, and make any OSC filing within 10 days where the exemption requires it. Tax treatment of SAFEs in Canada isn’t settled, so get tax advice on your form. See how do SAFEs work in Canada? and SAFE or convertible note?
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This guide is general information about Ontario and Canadian law, not legal or financial advice for your situation. To compare SAFE terms before you sign, book a free 15-minute consult.