Pre-Money SAFE (Valuation Cap)
For Informational Purposes Only
Simple Agreement for Future Equity — Cap-Only Variant for Seed-Stage Fundraising
Updated with 2025–2026 NVCA Oct 2025, OISP/DSP & Emerging Provisions
What This Document Does
A SAFE — Simple Agreement for Future Equity — is the most widely used instrument for pre-seed and seed-stage fundraising. It lets a startup take investment today without setting a price per share. Instead of buying stock directly, the investor receives a contractual right to convert their investment into equity at a future priced round, subject to a valuation cap that protects the investor’s economics.
This is the pre-money variant with a valuation cap only (no discount). The conversion price is calculated by dividing the valuation cap by the company’s pre-money capitalization — excluding the SAFE itself and other convertible instruments. If the company later raises a Series A at a $20M pre-money valuation but the SAFE has a $10M cap, the SAFE investor converts at the $10M price, getting twice as many shares per dollar invested as the Series A investors. This rewards the SAFE investor for taking early risk.
Unlike the Post-Money SAFE (which calculates dilution based on the post-money capitalization including all SAFEs), this pre-money variant calculates conversion based on the pre-money capitalization — excluding the SAFE itself and other convertible instruments. This means the founder’s dilution from multiple SAFEs is harder to predict upfront, which is why Y Combinator shifted to the post-money version in 2018. However, many angel investors and non-YC-aligned funds still prefer the pre-money structure.
Why Startups Need This
At the earliest stages, a company may not have enough revenue or traction to justify a formal valuation. A SAFE lets you take investment without negotiating a price per share — the conversion price is determined later when you do a priced round. The cap protects the investor by setting a ceiling on that future price. For a $100K angel check, a SAFE closes in days rather than the weeks or months required for a priced round with a stock purchase agreement, investor rights agreement, voting agreement, and other transaction documents.
A SAFE is not debt. It has no interest rate, no maturity date, and no repayment obligation. If the company never does a priced round, the SAFE never converts — but the investor also never demands repayment. This eliminates the default risk that comes with convertible notes, where a maturity date creates a potential bankruptcy trigger if the company cannot repay or extend. The only scenario where the SAFE investor receives cash back is a dissolution event, where the investor receives the lesser of the purchase amount or their pro rata share of remaining assets after creditors and preferred stockholders are paid.
Pre-money SAFEs remain the instrument of choice for individual angels, angel groups, and many micro-VCs. While YC-backed companies typically use the post-money version, the pre-money SAFE is still widely used in the broader ecosystem — particularly by investors who prefer the original structure or whose legal counsel is more familiar with it. Until conversion, the SAFE holder has no voting rights, no right to dividends, and no right to elect directors, which simplifies corporate governance during the pre-seed and seed stages when the founder should be focused on building, not managing a complex board.
Key Provisions
Valuation Cap Conversion
The core economic term. The SAFE converts at a price per share equal to the valuation cap divided by the company’s pre-money capitalization (fully diluted, excluding unissued option pool increases and other converting instruments). If the next round’s price is lower than the cap-derived price, the SAFE converts at the lower price — giving the investor the better of the two calculations. This “cap as ceiling” mechanic is the investor’s primary protection.
Equity Financing (Conversion Trigger)
The SAFE automatically converts upon a qualifying equity financing — typically defined as a bona fide transaction with the primary purpose of raising capital, resulting in the issuance of preferred stock. The template includes bracket placeholders for a minimum financing threshold to prevent conversion on trivially small rounds. Upon conversion, the SAFE holder receives the same series of preferred stock as the new investors, with identical rights, preferences, and privileges.
Liquidity Event & Dissolution
If the company is acquired or goes through a change of control before the SAFE converts, the investor can choose between receiving cash equal to the purchase amount or converting into common stock at the cap price and participating in the acquisition proceeds. In a dissolution event, the SAFE holder receives the purchase amount back — but only after secured creditors and preferred stockholders are paid, and subject to available funds. This is subordinate to preferred stock but senior to common.
Pro Rata Rights
The template includes a commitment to execute a Pro Rata Rights Agreement, giving the SAFE investor the right to participate in future private placements to maintain their ownership percentage. This is a valuable right — without it, later investors could dilute the SAFE holder’s stake. Pro rata rights typically apply to the next round only and are subject to customary exceptions for stock option grants and strategic acquisitions.
No Voting Rights, No Board Seat
Until conversion, the SAFE holder has no voting rights, no right to dividends, and no right to elect directors. The SAFE is not equity — it is a contractual right to future equity. This simplifies corporate governance during the pre-seed and seed stages when the founder should be focused on building, not managing a complex board.
Emerging Provisions (2025–2026)
OISP/DSP National Security Representations
Following the NVCA’s October 2025 model document updates, this template includes two-way representations under the Outbound Investment Security Program (OISP) and Data Security Program (DSP). Both the company and the investor must confirm they are not “persons of a country of concern” or engaged in covered activities involving semiconductors, AI, or quantum computing linked to countries of concern. This is critical for startups in regulated sectors — an investor with undisclosed foreign beneficial ownership could jeopardize government contracts, grants, or exit timing.
QSBS Qualification Tracking
The template includes representations regarding the company’s qualification as a “qualified small business” under Section 1202 of the Internal Revenue Code. SAFE investors who eventually convert to stock may be eligible for up to 100% exclusion of capital gains on qualifying stock held for five years. The QSBS holding period begins at conversion (or at exercise for options), making it essential to track qualification status from the earliest stages of the company’s life.
Digital Securities Issuance
As more startups explore digital cap table management and tokenized equity, the template accommodates issuance through compliant digital securities platforms. The emerging OISP and DSP frameworks provide regulatory pathways for digital issuance, and the SAFE’s simple structure makes it particularly well-suited for platform-based transactions where speed and standardization are paramount.
How to Use This Template
Step 1: Fill in the company name, state of incorporation, and investor details in the bracket placeholders throughout the document.
Step 2: Set the Valuation Cap — this is the maximum pre-money valuation at which the SAFE will convert. Research comparable deals at your stage and sector. Common ranges: $2M–$6M for pre-seed, $5M–$15M for seed, though these vary significantly by market and geography.
Step 3: Determine whether to include the Pro Rata Rights Agreement as a side letter. Most institutional angels and micro-VCs will expect this. Individual angels writing smaller checks may not require it.
Step 4: Complete the OISP/DSP representations if your company operates in or adjacent to semiconductors, AI, quantum computing, or other covered technology areas. Even if not currently in scope, including these representations establishes good governance practices.
Step 5: Have both parties execute the agreement. The SAFE is a bilateral contract — no board resolution is required (though best practice is to have the board ratify the issuance). File the executed SAFE with your corporate records and update your cap table.
Step 6: Have your legal counsel review the completed SAFE before execution, particularly the valuation cap, conversion mechanics, and any modifications to the standard template.
Related Forms
Disclaimer: This SAFE template is provided by Montague Law for informational and educational purposes only and does not constitute legal advice. A SAFE is a binding legal instrument with significant economic implications for both the company and the investor. The valuation cap, conversion mechanics, and pro rata rights should be negotiated with the guidance of experienced startup counsel. Use of this template does not create an attorney-client relationship. For legal assistance with SAFE agreements, seed fundraising, or venture financing, contact john@montague.law.