SAFE (Simple Agreement for Future Equity) — Valuation Cap & Discount Conversion Math, and How It Differs from Convertible Notes

#Investing Without a Valuation — SAFE's Three Structures

Early-stage startups rarely have enough revenue or users to agree on a valuation. SAFE solves this by saying: 'Set the terms now; lock in the valuation at the next priced round.' Y Combinator introduced the SAFE in December 2013 through YC partner and attorney Carolynn Levy as an alternative to convertible notes, designed to be 'convertible debt without the debt.'

YC currently distributes three US-entity SAFE templates: ① Valuation Cap, No Discount; ② Discount, No Valuation Cap; ③ MFN (Most Favored Nation), No Valuation Cap, No Discount. Korean SAFEs follow the same logic — the cap and discount rate are set at signing, while the share count and price per share are determined when a priced round closes.

#Post-Money Valuation Cap — How Investment Converts into Shares

In a Post-money SAFE, the number of converted shares is: Investment Amount ÷ (Post-Money Cap ÷ Company Capitalization). Dividing the investment by the cap gives the SAFE investor's target ownership. Invest $100K at a $1M cap and the investor is targeting 10% ($100K ÷ $1M).

If the Series A prices at $5.00 per share, Series A investors receive 20,000 shares per $100K invested, while SAFE investors receive 100,000 shares for the same amount. That difference is the tangible value of the valuation cap.

#Discount Rate — Getting More Shares for the Same Investment

With a discount-rate SAFE, the conversion price equals the priced-round price per share multiplied by (1 − discount rate). Discounts typically range from 15% to 25%. If the Series A prices at $10.00 per share and the discount is 20%, the SAFE investor converts at $8.00 per share.

#SAFE vs. Convertible Note — Three Deciding Differences: Interest, Maturity, and Investor Status

A convertible note accrues interest, has a maturity date, and sits on the balance sheet as debt. If a priced round hasn't closed by maturity, principal repayment becomes due. A SAFE carries no interest and no maturity date, eliminating cash-repayment pressure on founders — though convertible notes typically include both a cap and a discount rate.

#Legal Requirements for Korean SAFEs and What Founders Must Verify

In Korea, conditional equity acquisition agreements were formally incorporated into law through the Act on Promotion of Venture Investment, enacted in February 2020 and effective August 12, 2020. In February 2026, the Korea Accelerator Industry Association (KAIA) partnered with law firm DLG to publish a standard SAFE contract and guidelines covering practical guidance on setting valuation caps and discount rates, as well as investor consent rights and information rights prior to share conversion.

• Unanimous shareholder consent is required at signing. If even one existing shareholder withholds consent, the agreement may be legally defective.
• There is a legal obligation to notify subsequent investors in writing of any outstanding SAFEs. Proceeding to a Series A without that disclosure can render the agreement defective.
• SAFEs are not recorded in the corporate registry. Without a separate cap table entry, subsequent investors will have difficulty gauging the full dilution impact.
• Each additional SAFE issued compounds dilution across each instrument's cap and discount terms. When multiple SAFEs convert simultaneously at a priced round, founder dilution can be significantly greater than expected.

A SAFE looks like a simple agreement, but valuation caps, discount rates, conversion triggers, and stacked dilution all interact. The most practical thing a founder can do before signing is to manually calculate the worst-case conversion share count.