Y Combinator’s Post-Money SAFE - Risks for Founders

Sep 19, 2026

Y Combinator’s Post-Money SAFE is examined as a legal financing mechanism for early-stage startups. The update traces SAFE’s evolution from the original pre-money Valuation Cap model to the post-money approach introduced in 2018. It explains how valuation caps and equity financing terms determine eventual share outcomes, and how post-money drafting can trigger anti-dilution protection for SAFE holders. The analysis highlights that this investor protection may materially reduce founder ownership.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages8

Reading Time3 min

AccessFree to download

Introduction to Y Combinator’s SAFE

Core mechanisms and Valuation Cap

Post-money change and anti-dilution effects

Y Combinator’s Post-Money SAFE: Risks for Founders1 U.S. TECH LAW UPDATE2 November 7, 2023 By: Greg Pilarowski | Alexandra Ashbrook Y Combinator, one of the most famed Silicon Valley startup accelerators, introduced the“Simple Agreement for Future Equity”(commonly referred to as the “SAFE”)3 in late 2013. Recognized within the early investment community for its efficiency, the SAFE serves as a prominent tool for early-stage financing in startups. As its name suggests, the SAFE empowers investors to secure ownership in a startup at a future date in exchange for a capital injection into the company at present. The number of shares investors will ultimately receive through a SAFE hinges on either the share price established in the company’s next round of financing (referred to as an “Equity Financing”) or a predetermined valuation cap agreed upon by the investor and the company, outlined in the SAFE itself as the “Valuation Cap”. Originally, Y Combinator’s SAFE featured a “pre-money” Valuation Cap, aptly termed the “Pre-Money SAFE.” However, a pivotal shift occurred in 2018 when Y Combinator altered its approach, embracing a “post-money” Valuation Cap in its model SAFE. This newer SAFE is referred to as a “Post-Money SAFE.” This transition from the Pre-Money SAFE to the PostMoney SAFE carries potential ramification for founders who utilize the current Y Combinator Valuation Cap-only SAFE. Under the Post-Money SAFE, when the company issues numerous SAFEs across various financing rounds, SAFE holders benefit from anti-dilution protection, which shields them from the dilutive impact of any subsequent SAFEs or other convertibles issued prior to an Equity Financing. This protective mechanism, while advantageous for SAFE holders, may lead to a significant reduction in ownership percentage for the founders. This legal update briefly reviews the drafting history of Y Combinator’s SAFE, explains its core mechanisms, and underscores how Y Combinator’s shift to the Post-Money SAFE can lead to anti-dilution protection to SAFE holders at the expense of founder ownership. Founders may not always fully grasp the potential pitfalls associated with Y Combinator’s Post-Money SAFE, as the SAFE’s nuances are embedded in a standard document frequently signed without legal counsel. 1 This U. S. Tech Law Update is adapted from Greg Pilarowski’s presentation on the Term Sheet Walk-Through: Simple Agreement for Future Equity (SAFE) during the Angel Advanced Investing Bootcamp, held by Harvard Business School Alumni Angels Association on October 10, 2023. We extend special thanks to Alexa McCulloch and Sameera Bazaz for organizing the event and providing their comments on the presentation. Notwithstanding their gracious attention and knowledgeable insight, any errors or oversights in this legal update are Pillar Legal’s own. 2 This U. S. Tech Law Update is provided by Pillar Legal, P.C. (the “Firm”) as a service to clients and other readers. The information contained in this publication should not be construed as legal advice, and use of this memorandum does not create an attorney-client relationship between the reader and the Firm. In addition, the information has not been updated since the date first set forth above and may be required to be updated or customized for particular facts and circumstances. This U.S. Tech Law Update may be considered “Attorney Advertising” under applicable law. Questions regarding the matters discussed in this publication may be directed to the Firm at the following contact details: +1-925-474-3258 (San Francisco Bay Area office), +86- 21-5876-0206 (Shanghai office), email: [info@pillarlegalpc.com](info@pillarlegalpc.com. Firm website: www.pillarlegalpc.com)[. Firm website:](info@pillarlegalpc.com. Firm website: www.pillarlegalpc.com)[ www.pillarlegalpc.com](info@pillarlegalpc.com. Firm website: www.pillarlegalpc.com). © 2023 Pillar Legal, P.C. 3 The latest SAFE is available at [http://ycombinator.com/doc

FAQs

What is a SAFE and how does it work in startup financing?

A SAFE (Simple Agreement for Future Equity) lets investors receive equity at a future date after investing capital now. The final shares depend on either the next round share price or a predetermined valuation cap stated in the SAFE.

What changed when Y Combinator moved from pre-money to post-money SAFE?

In 2018, Y Combinator shifted from a pre-money Valuation Cap model to a post-money valuation cap approach. This change can alter the economic outcomes for founders using Y Combinator’s current valuation-cap-only SAFE.

How can the Post-Money SAFE lead to reduced founder ownership?

When the company issues multiple SAFEs across financing rounds, post-money SAFE holders can receive anti-dilution protection. While beneficial to investors, this protection can significantly decrease the founders’ ownership percentage.

Sep 19, 2026

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