Startup Valuation and the Cap Table

In a priced round, post-money valuation equals pre-money valuation plus new money, and the new investor's ownership equals the investment divided by post-money. Option pool increases are usually carved out of the pre-money, which shifts dilution onto existing holders, and SAFEs or convertible notes convert into preferred stock at the lower of a cap-based or round-based price. Liquidation preferences then decide who gets paid first if the company is sold.

Pre-money, post-money, and ownership

A pre-money valuation is the company's value immediately before an investment, and a post-money valuation is its value immediately after; raising $2 million at a $10 million pre-money valuation is generally the same as raising $2 million at a $12 million post-money valuation ^[1]. The investor's share is the new capital divided by the post-money valuation ^[2]. Damodaran notes that adding the new money to pre-money only makes sense if the cash stays in the company; money used to buy out existing holders should not be added back ^[2].

How SAFEs work

Y Combinator introduced the SAFE (simple agreement for future equity) in late 2013 as a replacement for convertible notes and moved to the post-money SAFE in 2018 ^[1]. YC's current U.S. forms are a valuation-cap version, a discount version, and an uncapped MFN version, with an optional pro rata side letter ^[3]. In the post-money SAFE, the cap is measured after all SAFE money and after the existing option pool, but before the new money and any pool increase in the priced round ^[1]. That makes ownership easy to compute: $1 million at a $6.7 million post-money cap is about 15% ^[1].

When the company sells preferred stock in a priced round, SAFEs convert automatically, with no minimum raise required ^[1]. The SAFE holder gets the greater of the shares implied by the cap or the shares its purchase amount would buy at the new investors' price ^[1]. In a sale of the company, a SAFE holder receives the greater of its money back or its as-converted proceeds, ranking behind creditors and on par with non-participating preferred ^[1]. A SAFE has no maturity date ^[1]. FINRA has cautioned that a SAFE is not common stock and that, if no conversion trigger ever occurs, it may never convert ^[4].

How convertible notes differ

Convertible notes are debt instruments that usually convert into equity at the next financing, often at a discount, and conversion may require a minimum round size ^[5]. Unlike SAFEs, notes accrue interest, have maturity dates, and carry creditor rights if not repaid or converted ^[6]. A discount reduces the new-money price per share by a set percentage, while a valuation cap lowers the conversion price only when the round's valuation exceeds the cap ^[6]. Because notes are debt, YC advises against mixing notes and SAFEs: notes have priority in a sale or dissolution ^[1].

Worked example: SAFE to Series A

• Starting point: founders hold 8,000,000 shares and the option pool holds 1,000,000 (all unissued). Founders own 8.0M ÷ 9.0M = 88.9%.
• SAFE: an angel invests $1,000,000 at a $10,000,000 post-money cap, buying 10% of the post-SAFE capitalization. 10% of capitalization means SAFE shares S satisfy S ÷ (9,000,000 + S) = 0.10, so S = 1,000,000 shares and the SAFE price is $10M ÷ 10M = $1.00. Founders now own 8.0M ÷ 10.0M = 80.0% on an as-converted basis.
• Series A terms: $8,000,000 at a $32,000,000 pre-money ($40M post-money), so new investors get 20%. The term sheet also requires an unissued option pool equal to 10% of post-money shares, counted in the pre-money.
• Solve for total shares N: founders 8.0M + SAFE 1.0M + pool 0.10N + Series A 0.20N = N, so 9.0M = 0.70N and N ≈ 12,857,143. The pool grows to about 1,285,714 shares (an increase of about 285,714), and Series A investors receive about 2,571,429 shares at about $3.11 each.
• Result: founders about 62.2%, SAFE holder about 7.8%, option pool 10.0%, Series A 20.0%. The SAFE's shares, bought at $1.00, are now priced at about $3.11, a paper gain of roughly 3.1x.

Liquidation preferences

Venture preferred stock is usually entitled to be paid before common stock in a liquidation or sale. The NVCA model certificate of incorporation offers two templates ^[7]. With non-participating preferred, each share receives the greater of a multiple of its original issue price (plus declared but unpaid dividends) or what it would receive if converted to common ^[7]. With participating preferred, holders first receive their multiple of the original issue price and then share in the remaining proceeds alongside common on an as-converted basis ^[7]. Under YC's SAFE, SAFE preferred stock carries the same liquidation multiple as the new-money preferred but a per-share amount based on the SAFE price, so its liquidation amount equals the purchase amount at a 1x multiple ^[1].

Key terms

Pre-money valuation

The company's value immediately before new money is invested.

Post-money valuation

Pre-money valuation plus the new investment.

Option pool

Shares reserved for future employee equity grants; increases are often required to be included in the pre-money valuation.

Post-money SAFE

YC's SAFE in which the valuation cap is measured after all SAFE money but before the priced round's new money and any pool increase.

Valuation cap

A maximum valuation used to set a convertible instrument's conversion price, benefiting the holder when the round prices above it.

Discount

A percentage reduction off the new investors' price per share that a convertible holder receives at conversion.

Convertible note

A debt instrument that accrues interest, has a maturity date, and usually converts into equity at a future financing.

Liquidation preference

A right for preferred holders to be paid a set amount, usually a multiple of their investment, before common holders in a sale or liquidation.

Check your understanding

Sources

1. [1]Y Combinator, “Post-Money Safe User Guide,” Accessed November 2026.
2. [2]Aswath Damodaran, NYU Stern School of Business, “Valuing Young, Start-up and Growth Companies: Estimation Issues and Valuation Challenges,” May 2009.
3. [3]Y Combinator, “The SAFE — the open standard for startup fundraising,” Accessed November 2026.
4. [4]FINRA, “Be Safe—5 Things You Need to Know About SAFE Securities and Crowdfunding,” May 19, 2017.
5. [5]Cooley GO, “Definition of Convertible Note,” Accessed November 2026.
6. [6]Gunderson Dettmer (Catalyze), “Pre-Seed Financing,” Accessed November 2026.
7. [7]National Venture Capital Association, “NVCA Model Certificate of Incorporation (Updated Oct 2025),” October 2025.

Educational content only — not legal, tax, or investment advice, or an offer to sell or a solicitation of an offer to buy any security. Rules and data are described as of November 2026 and may change. Securities offered through Umergence LLC, Member FINRA/SIPC.