The two terms that decide the price
- Valuation cap: the maximum valuation your SAFE converts at, protecting you if the next round prices much higher.
- Discount: a percentage off the next round's price, rewarding you for coming in earlier and taking more risk.
Most SAFEs include a cap, a discount, or both, and you convert at whichever mechanism gives you the better price. A third, simpler option is a Most Favored Nation (MFN) clause: your terms automatically match the best terms given to any later SAFE investor in the same round (Lesson 30 covers what happens when several rounds of these stack together).
Worked conversion example
You put $50,000 into a SAFE with a $6m cap and a 20% discount. The next priced round comes in at a $10m pre-money valuation ($12.50/share equivalent, for simplicity).
| Mechanism | Effective conversion price | Shares for $50,000 |
|---|---|---|
| Via the $6m cap | $7.50/share (cap ÷ implied share count) | ~6,667 |
| Via the 20% discount | $10.00/share (20% off $12.50) | ~5,000 |
| You convert at | $7.50/share (the better price) | ~6,667 |
This is the mechanic worth internalizing: whichever of cap or discount is more favorable at conversion time is the one that applies, which is exactly why the cap is worth negotiating carefully even though no price is being set today. A lower cap always favors you; a founder pushing for a higher cap is, in effect, negotiating your eventual ownership percentage without either side calling it that.
Checkpoint
- Cap and discount: you convert at whichever gives the better price.
- MFN: automatically matches the best terms given to any later SAFE investor in the same round.
- A lower cap always favors the angel; it's the single most consequential number on a SAFE.
If anything here still feels unclear, ask before moving to Lesson 7.