Question

What is the defining technical difference between a &#x27;post-money&#x27; SAFE and a &#x27;pre-money&#x27; SAFE regarding the calculation of the investor&#x27;s ownership stake?

Accepted Answer

The defining difference between a pre-money and a post-money SAFE is whether the investor’s ownership stake is calculated based on the company’s valuation before or after the new investment capital is added to the company&#x27;s equity pool. A pre-money SAFE determines the investor&#x27;s ownership percentage based on the company&#x27;s valuation excluding the new cash being invested, which means the investor&#x27;s percentage is diluted by their own investment as it is added to the total share count. Conversely, a post-money SAFE fixes the investor&#x27;s ownership stake based on the company’s valuation including the new investment, effectively guaranteeing the investor a specific percentage of the company at the time of the agreement regardless of how much additional money is raised in that same round. For example, if an investor puts 1 million dollars into a company with a 5 million dollar valuation, a pre-money calculation treats the 5 million as the base for the ownership split, causing the investor&#x27;s stake to shrink as their 1 million dollars is incorporated into the company. A post-money calculation treats the 5 million as the base value before the 1 million is added, meaning the investor knows exactly what portion of the company they own relative to that 6 million dollar total value. The post-money SAFE was introduced to eliminate the uncertainty of dilution, as pre-money SAFEs required complex pro-forma capitalization table calculations to predict the final ownership stakes once all investors in a round were included.

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What is the defining technical difference between a 'post-money' SAFE and a 'pre-money' SAFE regarding the calculation of the investor's ownership stake?