3 minute watch | April.06.2026
Nick Feldman and Cody Peterson, partners in Orrick's Technology Companies Group, break down how to think about SAFE terms and valuation caps for pre-seed companies. Learn:
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Cody: When we're talking about a SAFE, how do we start thinking about what the appropriate valuation cap is?
Nick: It's a really good question and, you know, especially for a pre-seed financing, it can be really hard to think about valuation for a company that is inception stage or very early-stage pre-product, pre-revenue. How do you value that?
SAFEs typically carry a valuation cap. A SAFE will convert either at the next round or the better of the next round cash price -- or a price determined based on this valuation cap. Rather than focusing on the valuation cap and saying, my company is worth X million dollars today, I think it's more productive and more useful, frankly, to think about it in terms of dilution.
If you are raising a smaller SAFE round of friends and family dollars to get off the ground, then you should be taking probably a little bit less dilution proportionally than if you're raising a larger SAFE round – more dilution. If you're raising $1 million at a $10 million valuation cap, you may say: “My company is just getting off the ground, it's not worth $10 million.” But what you're really saying is: “I'm taking in a million dollars in exchange for 10% of my company on a post-money basis.”
Cody: Yeah. I think that's spot-on. You mentioned the post-money cap. I think it's important to note that really the YC form now is a post-money valuation cap. Talking about post money -- that means essentially the value of the company after the money is invested. If you raise $1 million on a $10 million post, you're thinking of about 10% dilution.
But sometimes there are conversations around pre-money valuation caps. If you go back in time, the original SAFEs were pre-money valuation caps. Are there any risks or concerns? How do founders and companies get in trouble in terms of raising money on multiple different states, different valuation caps?
Nick: Yeah, it's a great point, and there's been a lot written and a lot said about how important it is for founders to understand the amount of dilution that they're taking from SAFEs. If you are stacking SAFEs – and by stacking SAFEs, we mean raising multiple SAFE rounds at different valuations over different periods of time before they convert in connection with an equity financing – the amount of dilution is easier to lose track of.
It is a very unfortunate but not uncommon outcome to have a founder sell several series of SAFEs and then get to an equity financing and realize that they own a lot less of the company than they thought they did.