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Simple Agreements for Future Equity ("SAFEs") and Convertible Notes ("Notes") are popular tools for fundraising, especially at the earlier stages.
However, without careful planning, both tools can bite founders hard, especially during a raise.
Let's say you're doing a series A, and you’ve agreed on valuation with your investors. The next step is figuring out the price per share. That number determines how much stock investors receive, how much dilution founders take, and what the cap table looks like afterward.
If you have no convertible notes or SAFEs, it’s simple math.
If you do have notes or SAFEs converting, the math gets more complicated, and the negotiations can reopen your “agreed” valuation.
This guide walks through both, with practical examples.
1. The Simple Case: No SAFEs or Convertible Notes
Example 1: The clean Series A
- Pre-money valuation: $8 million
- Investment: $2 million
- Post-money valuation: $10 million
- Fully diluted shares pre-investment: 1,000,000
Step 1: Calculate the price per share
→ $8,000,000 ÷ 1,000,000 = $8.00 per share
Step 2: Calculate ownership after investment
→ $2,000,000 ÷ $10,000,000 = 20% investor ownership
Result:
- Founders: 80%
- Series A investors: 20%
Pretty straightforward. Now let’s complicate it with some SAFEs & Notes.
2. The Real-World Case: When SAFEs or Notes Are Converting
Convertible instruments (SAFEs or notes) convert into shares right before or alongside the Series A. That means they create new shares, which dilute someone (usually the founders, sometimes the new investors).
The key questions
- Who bears the dilution - founders, new investors, or both?
- By how much?
There are three standard ways to handle this. Let’s walk through them with realistic examples.
3. The Pre-Money Method
This method fixes the pre-money valuation. The price per share for new investors is based on that valuation, and the convertible instruments convert at a discount.
This method is founder-friendly and aligns with how most early-stage investors interpret pre-money terms.
Example 2: $1M in SAFEs converting with a 30% discount
Assumptions
- Pre-money: $8M
- Post-money (agreed): $10M
- Series A investment: $2M
- SAFEs: $1M principal
- Discount: 30%
- Shares pre-investment: 1,000,000
Step 1: Calculate Series A price per share
→ $8M ÷ 1,000,000 = $8.00 per share
Step 2: Calculate SAFE conversion price
→ $8.00 × (1 – 30%) = $5.60 per share
Step 3: Determine SAFE shares issued
→ $1,000,000 ÷ $5.60 = 178,571 shares
Step 4: Determine Series A shares
→ $2,000,000 ÷ $8.00 = 250,000 shares
Resulting cap table
| Group | Shares | % Ownership |
|---|---|---|
| Founders | 1,000,000 | 70.0% |
| SAFE holders | 178,571 | 12.5% |
| Series A investors | 250,000 | 17.5% |
| Total | 1,428,571 | 100% |
What it means
Everyone shares the dilution proportionally.
Investors end up with 17.5% instead of 20%, but the valuation founders pitched ($8M pre) stays intact.
4. The Percentage-Ownership Method
This method fixes the investor’s ownership percentage (usually 20%) - and lets the price per share adjust to make that math true.
This method is more more favorable to investors, because founders bear all dilution from conversion. If investors want this in the term sheet, this needs to be negotiated against.
Example 3: Same facts, investor insists on 20%
Step 1: Solve for Series A price per share**
You need the price that makes $2M equal 20% of post-money value.
Result: $6.57 per share
Step 2: SAFE conversion price**
→ $6.57 × (1 – 30%) = $4.60 per share
Step 3: Determine shares issued**
- SAFE holders: $1M ÷ $4.60 = 217,391 shares
- Series A investors: $2M ÷ $6.57 = 304,348 shares
Resulting cap table
| Group | Shares | % Ownership |
|---|---|---|
| Founders | 1,000,000 | 65.7% |
| SAFE holders | 217,391 | 14.3% |
| Series A investors | 304,348 | 20.0% |
| Total | 1,521,739 | 100% |
What it means
Founders take all the dilution from the SAFE conversion.
The effective pre-money drops to $6.6M even though you “agreed” to $8M.
5. The Dollars-Invested Method
So we have one method that's founder friendly, and one that's investor friendly. How do we bridge that gap?
The Dollars-Invested Method is a compromise most lawyers recommend if the term sheet is silent. It treats SAFE/Note money as if it were part of the total capital invested into the company.
Example 4: Same facts, compromise reached
Post-money = Pre-money ($8M) + Series A ($2M) + SAFEs ($1M) = $11M
Step 1: Series A price per share**
→ $11M ÷ (1M shares + new shares to be issued) = solved = $7.57 per share
Step 2: SAFE conversion price**
→ $7.57 × (1 – 30%) = $5.30 per share
Step 3: Determine shares**
- SAFE holders: $1M ÷ $5.30 = 188,679 shares
- Series A investors: $2M ÷ $7.57 = 264,151 shares
Resulting cap table
| Group | Shares | % Ownership |
|---|---|---|
| Founders | 1,000,000 | 68.8% |
| SAFE holders | 188,679 | 13.0% |
| Series A investors | 264,151 | 18.2% |
| Total | 1,452,830 | 100% |
What it means
Investors keep roughly the same economics they expected, founders take moderate dilution, and everyone can live with the result.
The SAFE conversion is treated as part of the company’s total invested capital - not ignored, not double-counted.
6. Key Takeaways for Founders
1. Clarify SAFE terms early.
Before closing a SAFE round, agree whether those notes convert “in the pre-money” or “in the post-money.”
2. Negotiate the conversion method up front.
Include it in your term sheet to avoid re-negotiating valuation later.
3. Model every scenario.
Use a cap table tool (like Carta) to run all three methods and see the impact on your ownership.
4. The dollars-invested method is usually the fairest.
It reflects real capital contributions while keeping investor expectations intact.
5. Clean record-keeping matters.
Track every SAFE’s principal, discount, and valuation cap precisely. Ambiguity will cost you equity.
7. Bottom Line
When convertible instruments convert into equity, “valuation” stops being a fixed number and becomes a moving target.
The method you choose can swing ownership by five to ten percentage points, and affect future rounds.
Too often, I see founders use SAFEs and Notes liberally, stacking them up, only to get bitten hard during Series A. While these documents are generally founder friendly, that doesn't mean they always are.
If your term sheet is silent, expect investors to push for the method that favors them. Be ready with your model and your lawyer.
At Apex Corporate Law, we help founders structure SAFEs, notes, and priced rounds in a way that preserves clarity, fairness, and control — before the math gets messy. Contact us for a free consultation.
