Does a SAFE convert on the cap or the discount?

Whichever gives the investor more shares — i.e. the lower conversion price. The conversion price is min(cap ÷ pre-money fully-diluted shares, round price × (1 − discount)). A low cap wins when your round prices high; a discount wins when your round is modest and the cap sits above the round's own price.

What if a SAFE has only a discount and no cap?

It converts at the round price minus the discount. Its dilution is unknown until the round prices, because it depends on a valuation you haven't set yet.

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Cap vs discount: which one your SAFE actually converts on

If your SAFE has both a valuation cap and a discount, only one of them governs the conversion. The rule is simple and always the same: the investor takes whichever produces more shares for them — that is, the lower conversion price. Which one wins depends entirely on how your priced round is valued, and the crossover surprises founders. Two worked examples below.

The formula

conversion price = min( cap ÷ pre-money fully-diluted shares, ← the cap path round price × (1 − discount) ← the discount path )

The SAFE converts at the smaller of the two. A lower price means the investor's fixed dollars buy more shares — so "better for the investor" and "worse dilution for you" are the same thing. You don't choose; the document picks the cheaper price automatically.

Example — the same SAFE, two different rounds

Hold the SAFE fixed and change only the round. In both cases: founders hold 8,000,000 shares and the SAFE is $500,000 principal with a $5,000,000 cap and a 20% discount.

Strong round → the cap wins

Round: $3,000,000 of new money at a $12,000,000 pre-money. The round prices the company well above the SAFE's $5M cap, so the cap gives the cheaper price.

cap path: cap gives the SAFE 500,000 ÷ 5,000,000 = 10.0% of post-money discount path: only 20% off a ~$12M+ round price — far less generous → the SAFE converts on the CAP, at $0.5625/share, for 888,889 shares

Holder	Shares	Ownership
Founders	8,000,000	72.0%
SAFE (converts on cap)	888,889	8.0%
New round investors	2,222,222	20.0%

Weak round → the discount wins

Now the round comes in low: $1,000,000 of new money at a $3,000,000 pre-money. The round's own price is below the $5M cap, so the cap no longer helps the investor — the 20% discount off the (already low) round price gives the cheaper price.

round price ≈ $0.3375/share → discount path: $0.3375 × 0.80 = $0.27 cap path would give a HIGHER price (the cap sits above the round) → ignored → the SAFE converts on the DISCOUNT, at $0.27/share, for 1,851,852 shares

Holder	Shares	Ownership
Founders	8,000,000	62.4%
SAFE (converts on discount)	1,851,852	14.5%
New round investors	2,962,963	23.1%

Same SAFE, same $500k — but 8.0% of the company in the strong round and 14.5% in the weak one. The cap protects the investor when you're doing well; the discount protects them when you're not. All four numbers are the engine's output for these inputs.

The practical takeaways

The cap governs almost every seed conversion in a normal-or-strong market — because caps are set well below where the priced round lands. If you only model the cap, you're usually right, but not always.
A down or flat round flips it. If your priced round comes in near or below the cap, the discount takes over and your dilution jumps — exactly when you can least afford it.
Discount-only (uncapped) SAFEs are the wild card. With no cap, dilution is entirely a function of a valuation you haven't set. See the uncapped-SAFE guide.

Caveat. Real documents complicate the picture: some SAFEs define "fully-diluted" differently (pool included or not), some cap the discount, and an MFN clause can swap in a better cap or discount from elsewhere in your stack. Model the number, then have counsel confirm it against your executed SAFEs. Not investment, legal, or tax advice.

Which one governs on your stack?

The report resolves cap-vs-discount-vs-MFN for every instrument and tells you exactly which one won and why — across the bear / base / bull rounds you're weighing.

Try the free estimate Get the report — $390

Cap vs discount: which one your SAFE actually converts on

The formula

Example — the same SAFE, two different rounds

Strong round → the cap wins

Weak round → the discount wins

The practical takeaways

Which one governs on your stack?

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