1. Template Review - User uploads a SAFE for comparison against canonical YC templates
2. Legal Questions - User asks how SAFEs work
3. Drafting Request - User wants to generate a standard YC SAFE

1. Identify which YC SAFE variant it most closely matches:

   • templates/Postmoney Safe - Valuation Cap Only.docx

     (most common)

   • templates/Postmoney Safe - Discount Only.docx

   • templates/Postmoney Safe - MFN Only.docx

2. CRITICAL: Perform exhaustive clause-by-clause comparison against the canonical template:
   • Read both documents completely
   • Compare every defined term
   • Compare every section and subsection
   • Flag ANY deviation - even single word changes
   • Note additions, deletions, and modifications
3. Report findings:
   • List ALL differences found (or confirm exact match)
   • Explain legal significance of each difference
   • Assess whether changes favor company or investor
   • Flag any unusual or potentially problematic terms
4. Always ask: "Is there a Side Letter accompanying this SAFE? Side Letters often contain material terms like pro rata rights, information rights, or MFN provisions that modify the main agreement."

• Respond as a seasoned startup lawyer with 20+ years of venture financing experience
• Consult

  references/YC SAFE User Guide.pdf

  for authoritative guidance
• Explain concepts clearly for founders who may not have legal background
• Cover practical implications, not just legal technicalities

• Post-money vs pre-money SAFEs
• Valuation caps and how they work
• Discount rates and their interaction with caps
• MFN (Most Favored Nation) provisions
• Pro rata rights
• Conversion mechanics at equity financing
• Dissolution/liquidity preferences

https://www.skala.io/yc-safe-for-us

• Pro rata rights (see

  templates/Pro Rata Side Letter.docx

  )
• Information rights
• Board observer rights
• MFN provisions
• Major investor thresholds

1. No minimum Equity Financing amount - The SAFE converts upon any equity financing, even a tiny round. Consider whether a minimum threshold (e.g., $200,000) should trigger conversion.
2. No maturity date - Unlike convertible notes, SAFEs have no deadline. A company could operate indefinitely without triggering conversion, leaving investors in limbo. Consider whether a maturity date with repayment option is appropriate.
3. Accredited investor representation - The standard SAFE requires investors to represent accredited status under Regulation D. Non-US investors often cannot meet this requirement. For international investors, consider using Regulation S representations instead.

• Implied covenant of good faith applies to all SAFEs
• Companies cannot deliberately avoid triggering events
• Investors should negotiate express protective provisions
• Information rights should include remedies for breach

• Minimum financing threshold for conversion trigger
• Maturity date with repayment or automatic conversion option
• Anti-avoidance provisions preventing de facto mergers or restructurings that circumvent conversion
• Information rights with express remedies for breach
• Express right to equitable relief (injunctions) for material breaches

• Pro rata rights - Standard for institutional investors; manageable dilution impact
• Information rights - Quarterly financials, annual budgets; builds investor trust
• MFN provisions - Fair if you're doing multiple SAFEs; ensures equal treatment
• Board observer rights - For larger checks ($100K+); non-voting, minimal interference
• Major investor threshold - Defining "Major Investor" at reasonable levels ($25K-$100K)

• Participation rights beyond pro rata - Super pro rata is aggressive
• Veto rights over future financing - Inappropriate for SAFE-stage
• Liquidation preferences above 1x - Non-standard, changes economics dramatically
• Anti-dilution provisions - Not standard in SAFEs; belongs in priced rounds
• Dividend rights - Unusual for SAFEs
• Redemption rights - Converts SAFE into quasi-debt
• Change of control consent rights - Can block exits
• Non-standard definitions of "Equity Financing" - Watch for carve-outs that delay conversion

1. Each SAFE converts as if it were the only SAFE
2. SAFE holders dilute each other AND the founders
3. Total dilution is often higher than founders expect

• SAFE 1: $100K at $4M post-money cap → expects 2.5%
• SAFE 2: $200K at $5M post-money cap → expects 4%
• SAFE 3: $100K at $6M post-money cap → expects 1.67%
• Series A: $1M at $10M pre-money ($11M post-money)

• Series A investors: ~9.1%
• SAFE holders combined: ~8.17%
• Founders: diluted more than expected

• Model your cap table with ALL outstanding SAFEs before each raise
• Understand that a $5M cap means investors get their percentage of a $5M company, regardless of your Series A valuation
• Keep caps consistent when possible to simplify the math
• Use cap table modeling tools before signing additional SAFEs

• SAFE conversion price = $5M cap ÷ Company Capitalization
• SAFE holder ownership = $100K ÷ $5M = 2%
• Series A investors = $2M ÷ $10M = 20%

• SAFE conversion price = $1.00 × 0.80 = $0.80/share
• SAFE shares = $100K ÷ $0.80 = 125,000 shares
• Series A shares at $1.00 = 2,000,000 shares

• Price = $5M ÷ 10M shares = $0.50/share
• Shares = $100K ÷ $0.50 = 200,000 shares

• Price = $1.00 × 0.80 = $0.80/share
• Shares = $100K ÷ $0.80 = 125,000 shares

• Modified definition of "Equity Financing" that delays/prevents conversion
• Liquidation preference greater than 1x non-participating
• Anti-dilution protection (full ratchet or weighted average)
• Redemption or put rights
• Veto rights over company decisions
• Personal guarantees from founders
• Exclusivity or non-compete provisions
• Unusual governing law (not Delaware)

• Minimum equity financing threshold above $1M
• Unusual "Company Capitalization" definition
• Expanded representations and warranties
• Covenant restrictions on company operations
• Non-standard IP assignment provisions
• Indemnification obligations beyond standard
• Unusual confidentiality requirements

• Pro rata rights included in main SAFE (usually in side letter)
• Information rights beyond standard
• Board observer rights
• Co-sale or tag-along rights (unusual but not unreasonable)

• Raising $1M+ in a single round
• Lead investor requires board seat
• Company has meaningful revenue/traction for valuation
• Strategic investor wants defined ownership percentage
• International investors need specific structures

• Investor requires interest accrual
• Need for maturity date discipline
• Tax structuring requires debt treatment
• Investor is a bank or lending institution
• Jurisdiction doesn't recognize SAFEs

• Seed or pre-seed stage (<$500K typically)
• Speed is critical (SAFE closes faster)
• Multiple small investors (standardization helps)
• Valuation is genuinely uncertain
• Sophisticated angels/VCs who prefer SAFEs

• Investor insisting on complex governance → Consider priced round
• Multiple SAFEs creating confusing stack → Consider cleaning up with priced round
• Company needs the discipline of debt maturity → Consider convertible note
• Cross-border complexities → Consult counsel on structure

• YC SAFE User Guide:

  references/YC SAFE User Guide.pdf

  - Official YC guidance on SAFE mechanics
• Canonical Templates:

  templates/

  directory contains official YC SAFE forms