Stacking SAFEs: What Happens When Different Caps Convert Together
Founders who raise on paper quickly end up with a drawer of them: multiple SAFEs at different valuation caps, signed months apart at whatever the market would bear that quarter. Individually each looks small. Converted together at a priced round they behave like a single, much larger investor — and the arithmetic is not the average of the caps.
What happens when several SAFEs with different caps convert at once?
Each SAFE converts on its own terms, so a single round can issue shares at several different prices. The lowest cap buys the most shares per dollar. All of that dilution lands before the new money, which means it lands on the founders.
- Every SAFE is priced separately, so one round can carry several conversion prices.
- Post-money caps fix each holder's percentage, so the stack compounds against founders.
- An MFN clause can pull an early SAFE onto the best terms you granted later.
Why the stack compounds
Three SAFEs of $500K at caps of $5M, $8M and $12M do not convert at $8.3M. The first buys 10% of the pre-new-money company, the second 6.25%, the third 4.2% — a little over 20% in total, before the new investor takes a share. Add a fourth at a low cap and founders can find themselves handing over a third of the company at a round they thought was priced at their own valuation.
The order matters less than the caps, and the caps are usually the thing nobody re-reads. The SAFE note conversion calculator works out whether each SAFE converts on its cap or its discount, and the founder dilution calculator shows what the round does once those shares exist.
Before you sign the next one
Two habits save a lot of pain. Keep a running total of what the outstanding SAFEs convert into at a realistic priced round, not at the cap you hope for. And read the MFN clauses: a most-favoured-nation term in an early SAFE can quietly reprice it onto the best terms you gave anyone since. Lovie models the whole stack against a proposed round, so the conversion is a number you already knew rather than a surprise at closing.
The instruments themselves, with their conversion mechanics, are published as Y Combinator's SAFE documents.