How Y Combinator’s $500,000 Deal Splits Into a Fixed 7% SAFE and an Uncapped One

Y Combinator’s standard investment is $500,000, paid through two instruments that convert into equity on different terms. One piece buys a fixed percentage. The other has no valuation cap, so the share it produces depends on the terms of financing that comes later.

Both pieces are SAFEs, or simple agreements for future equity, so they do not set a share price at signing. They convert when the company later raises a priced round. Torys LLP’s explainer says the conversion price is the valuation cap divided by company capitalization, and that the calculation ignores the priced round.

YC’s current deal page and its January 2022 announcement describe the same split. Founders weighing the program against raising the same money from angels or a seed fund need to know which parts of the price are fixed and which move.

The $125,000 Piece: A Fixed 7% on a Post-Money SAFE

The deal page says $125,000 converts into a fixed 7% and describes that piece as a post-money SAFE. A post-money SAFE measures ownership against a base that counts all SAFEs, so the holder’s percentage is set before the priced round rather than left to move with other SAFEs.

Dividing $125,000 by 7% gives an implied post-money valuation of about $1.79 million. That figure is arithmetic on the page’s numbers, not a valuation that YC publishes.

The same page says the priced round and any increase in the option pool will dilute YC’s ownership. The 7% is therefore fixed going into the next priced round, and that round reduces it.

The standard split
YC’s deal page says $125,000 converts into a fixed 7% on a post-money SAFE, and that the remaining $375,000 goes into an uncapped SAFE with MFN terms.

The $375,000 Piece: An Uncapped SAFE With MFN Terms

The remaining $375,000 goes into an uncapped SAFE with most favored nation, or MFN, terms. A SAFE with no cap has no ceiling on its conversion price, so the number of shares it buys is not known when the money goes in.

The deal page says this piece converts in the priced round on the terms of the lowest-cap SAFE. Geoff Ralston’s January 11, 2022 announcement describes the comparison window as running from the start of the batch to the next equity round, and says the SAFE takes the most favorable terms issued in that window.

Because the term follows the lowest cap, a later SAFE with a higher cap does not change the terms this piece converts on. A lower cap in that window does. The piece therefore has no fixed percentage of its own. Its share is set by whichever cap the MFN term picks up.

The pages read for this article do not say what happens if no other SAFE is issued in that window. That point needs checking against the SAFE text before it is described to founders.

What the Two Pieces Add Up To in YC’s Example

The deal page works through one case. If the next SAFEs carry a $15 million post-money cap, the $375,000 converts into 2.5 percent, because $375,000 divided by $15 million equals 2.5 percent.

Adding that to the 7% gives 9.5 percent. That total is a calculation from the page’s example, not a figure the page states. It covers only the two YC pieces and leaves out the priced round and any option pool increase, which the page says dilute YC.

The share from the MFN piece is the $375,000 divided by whichever cap the term picks up. A lower cap produces a larger share, and a higher cap produces a smaller one. The 2.5 percent figure is therefore one outcome under one assumed cap, not a fixed term.

A founder comparing the package with a direct raise would need to run more than one case. One case uses a cap close to the company’s expected next round. Another uses a lower cap that a SAFE issued in the batch window might carry. The pages read here do not set a rule for choosing between them.

Why the 2018 Move to Post-Money Changes Who Dilutes Whom

YC moved its SAFE from a pre-money to a post-money basis in 2018, which Torys LLP’s explainer confirms directly. Rimon Law’s article, dated January 8, 2019, describes the change as made earlier that fall, consistent with that 2018 timing.

Under the pre-money form, the conversion math ran before the new money came in, and other SAFEs and notes were left out of the base. Rimon’s account says that left SAFE holders exposed to dilution from later convertibles and option grants.

Under the post-money form, all SAFE funding counts in the valuation used for conversion. Rimon’s example is $100,000 at a $5 million post-money cap, which owns 2 percent immediately before the qualified financing, regardless of other SAFEs or notes.

Torys LLP’s 2021 explainer says that under the post-money form, dilution from later SAFEs falls on existing shareholders, typically founders and employees, rather than on other SAFE holders. It also says the conversion calculation ignores the priced round.

The 7% is therefore fixed going into the next priced round, and that round reduces it.

Comparing the Package With Raising the Same Money Directly

A founder raising $500,000 on SAFEs alone would pick one or more caps, and the resulting percentage would depend on those caps and on the basis each document uses. YC’s package fixes one piece’s percentage and ties the other to later caps, so the two routes are not directly like for like.

Torys LLP’s explainer gives a conversion trap. A pre-money cap of $8 million, if switched to a post-money SAFE for a $1 million raise, should be restated as a $9 million post-money cap. Comparing YC’s terms with a home-made SAFE means confirming which basis each document uses before comparing the numbers.

The comparison can be rebuilt with the page’s figures in three steps. First, compute the implied valuation of the 7% piece. Second, choose a cap for the MFN piece and compute its share. Third, compare the combined share with the stake the same $500,000 would buy at the cap the founder would otherwise choose.

The deal page also says the $500,000 is committed on acceptance and is not tied to milestones, and that YC holds a pro rata right in later rounds. Those terms do not appear in the percentages above and belong in any comparison.

Where the Sources Leave Gaps

The deal page carries no effective date or version number. Its only date is a 2026 copyright footer, so the terms described here are the ones published on that page when it was read.

Rimon Law’s article reports that YC raised its standard investment from $120,000 to $150,000 in 2018, still for 7%, up from $20,000 in 2007; this piece does not trace other historical changes to the deal.

The January 2022 announcement and the current deal page agree on the $125,000 and $375,000 split and on the uncapped MFN structure. The 2018 timing of the post-money switch is confirmed by Torys LLP’s explainer and matches the wording of Rimon’s 2019 article; the full SAFE text was not read.

The summaries used here may simplify the SAFE documents, so the current YC SAFE forms and deal page are the controlling text.

Photo: Robert Scoble from Half Moon Bay, USA · CC BY 2.0 · via Wikimedia Commons