Pre-Money SAFE (Discount)
For Informational Purposes Only
A discount-only Simple Agreement for Future Equity — the investor receives shares at a percentage discount to the Series A price, with no valuation cap.
What This Document Does
A Pre-Money SAFE with a discount is the simplest form of SAFE agreement. Instead of setting a valuation cap, the investor receives a contractual right to convert at a percentage discount to whatever price-per-share the Series A investors pay. If the discount rate is 20%, and Series A investors pay $1.00/share, the SAFE investor converts at $0.80/share — receiving 25% more shares for the same dollar amount.
This variant is called “pre-money” because the Company Capitalization used to calculate conversion excludes the SAFE itself, other SAFEs, and convertible notes from the denominator. This means that when a founder issues multiple SAFEs, each additional SAFE dilutes all prior SAFE holders — and the founder’s resulting ownership after conversion can be difficult to predict precisely. The Post-Money SAFE solves this by including all SAFEs in the denominator.
The discount-only SAFE is most commonly used in the very earliest rounds of financing — friends-and-family rounds, accelerator bridge notes, or when the founder and investor agree that setting any valuation (even a cap) is premature. It rewards the earliest investors for taking maximum risk without requiring anyone to price the company.
Why Startups Need This
Raise Without a Valuation
At the earliest stages — pre-product, pre-revenue, sometimes pre-incorporation — setting a valuation is guesswork. A discount-only SAFE lets founders raise capital without anchoring to a number that may be wildly wrong. The discount itself (typically 15-25%) is the only economic term to negotiate.
Reward the Earliest Risk-Takers
Friends-and-family investors, accelerator mentors, and first-check angels take enormous risk. The discount guarantees they will receive shares at a lower price than Series A investors, no matter what valuation the company achieves. A 20% discount means they effectively buy in at 80% of the Series A price.
Speed and Simplicity
With only one economic variable — the discount rate — this is the fastest SAFE to negotiate and close. There is no cap to debate, no pre-money vs. post-money math to explain, and no shadow valuation for 409A purposes. Many founders close a discount-only round in a single meeting.
Bridge to a Cap Round
Some founders use a discount-only SAFE as a bridge instrument between formation and a larger SAFE round with a valuation cap. The discount-only investors get conversion priority (earlier investment, higher risk), and the cap-round investors get valuation certainty.
Key Provisions Explained
Discount Rate & Discount Price
The discount rate is the single economic term of this SAFE. It is expressed as a percentage (e.g., 80%, meaning a 20% discount). The Discount Price equals the Series A price per share multiplied by the discount rate. If the Series A price is $1.00 and the discount rate is 80% (i.e., a 20% discount), the SAFE investor converts at $0.80/share. Market standard in 2025-2026 is a discount rate of 75-85% (a 15-25% discount), with 80% (20% discount) being the most common.
Pre-Money Capitalization Calculation
Because this is a pre-money SAFE, the Company Capitalization used to determine conversion excludes the SAFE itself and other convertible instruments from the share count. This means that if the founder issues five SAFEs, each one’s conversion ratio is calculated independently — and the cumulative dilution can exceed what founders expect. Founders raising multiple rounds of SAFEs should model the dilution carefully or consider switching to a post-money SAFE for subsequent rounds.
Equity Financing Conversion
When the company raises a priced round (an “Equity Financing”), this SAFE automatically converts into Safe Preferred Stock at the Discount Price. The investor receives the same rights, preferences, and privileges as the Series A investors — except the per-share liquidation preference and anti-dilution conversion price are based on the Discount Price rather than the Series A price. The investor also executes the same transaction documents as other investors in the round.
Liquidity Event Treatment
If the company is acquired or goes public before a priced round, the investor chooses: (i) receive the Purchase Amount back in cash (a return of capital), or (ii) convert into Common Stock at the Liquidity Price (fair market value multiplied by the Discount Rate). If the investor fails to elect, the default is conversion. This ensures the investor is never forced to sell at a loss — they can always get their money back if the exit price would produce fewer shares than a straight return.
Dissolution Event
If the company winds down, the SAFE investor receives their Purchase Amount back before any distribution to common stockholders — a liquidation-preference-like feature that protects the downside. If there are not enough assets to repay all SAFE investors in full, each investor receives a pro rata share of whatever assets remain.
No Valuation Cap
Unlike the Valuation Cap variant, this SAFE has no ceiling on the effective conversion price. If the company raises a Series A at a $100M valuation, the SAFE investor still converts at the discounted price — but because there is no cap, the effective valuation for the SAFE investor is $80M (at a 20% discount), which may be far higher than what the investor would have received under a capped SAFE. This is why discount-only SAFEs are typically used only at the very earliest stages when both parties agree a valuation cap is inappropriate.
Pro Rata Rights
The SAFE entitles the investor to a Pro Rata Rights Agreement, giving them the right to participate in future private placements to maintain their percentage ownership. Pro rata is calculated based on the investor’s share of outstanding Capital Stock immediately before each new issuance. This right is especially important for early-stage investors who want to protect their ownership percentage as the company raises larger rounds.
Emerging Provisions (2025-2026)
OISP/DSP: Outstanding vs. Delayed Start Protection
The October 2025 NVCA Model Document updates introduced two competing investor-protection mechanisms for pre-money SAFEs. Outstanding Investor Side Protection (OISP) requires the company to count all outstanding SAFEs in the pre-money capitalization for any future financing, preventing the “stacking” problem where additional SAFEs silently dilute earlier investors. Delayed Start Protection (DSP) takes the opposite approach: outstanding SAFEs are excluded from the capitalization calculation, preserving the economic deal the investor negotiated at the time of their SAFE. This template includes check-box elections for both, letting the parties choose which applies.
QSBS Tax Exclusion (Section 1202)
Qualified Small Business Stock eligibility remains one of the most valuable tax benefits available to startup investors — up to $10 million (or 10x adjusted basis, whichever is greater) in capital gains exclusion for stock held more than five years. This template includes a company representation confirming aggregate gross assets do not exceed $50 million at the time of the SAFE, and a covenant to maintain Section 1202 compliance. With the current political climate around tax reform, founders and investors should consult their tax advisors on the continued availability of the QSBS exclusion.
Pre-Money SAFE Resurgence
After Y Combinator’s 2018 shift to post-money SAFEs, pre-money instruments fell out of fashion in Silicon Valley. However, 2025-2026 has seen a meaningful resurgence, particularly among (i) founders outside the YC ecosystem who find pre-money math more intuitive, (ii) angel investors who prefer the upside optionality of pre-money conversion, and (iii) international founders using SAFEs for the first time. The NVCA’s decision to publish updated pre-money model documents in October 2025 reflects this market shift.
Discount-Only vs. Valuation Cap: When to Use Which
How to Use This Template
Download and Review
Download the .docx template above. Review the full document with your legal counsel before sending to any investor. Understand each section — particularly the Discount Rate, OISP/DSP elections, and QSBS representation.
Set the Discount Rate
Replace [●]% with the agreed discount rate. Market standard is 80% (a 20% discount). Rates below 75% (a 25%+ discount) are aggressive and favor investors; rates above 85% (a 15% discount or less) may not adequately compensate early-stage risk. Consider how the discount interacts with any other SAFEs you plan to issue.
Fill In Party Information
Replace all bracketed placeholders: [Company Name], [State] of incorporation, [Investor Name], [Date of Investment], [Purchase Amount], and contact details. If the investor is an entity (e.g., an LLC or trust), ensure the signatory has authority to bind the entity.
Elect OISP or DSP
Check one of the two boxes in Section 3 to select whether Outstanding Investor Side Protection or Delayed Start Protection applies. If unsure, OISP is generally more investor-friendly (it prevents stacking dilution), while DSP preserves the original economic deal. Discuss with your attorney.
Execute and Fund
Both parties sign. The investor wires the Purchase Amount. File any required notices with your state securities regulator (e.g., Form D with the SEC if relying on Regulation D). Add the SAFE to your cap table as a convertible instrument, not as equity.
Related Forms
Disclaimer: This template is provided by Montague Law for informational and educational purposes only and does not constitute legal advice. This document is based on the Y Combinator Pre-Money SAFE form with modifications reflecting market practices as of 2025-2026, including provisions from the October 2025 NVCA Model Document updates. Use of this template does not create an attorney-client relationship. The terms of any SAFE should be reviewed by qualified legal counsel familiar with your specific circumstances. For legal advice tailored to your situation, contact Montague Law.