Founders lose more to terms they didn't understand than to valuation. This guide gets you fluent enough to have a sharp conversation with your lawyer. It isn't legal or tax advice: have a startup lawyer review anything before you sign.
1Understand what a post-money SAFE sells
Most pre-seed rounds use Y Combinator's post-money SAFE. Get the official version from ycombinator.com/documents; never sign an edited copy without your lawyer's review.
The key idea: with a post-money valuation cap, the percentage you sell is fixed in advance.
Ownership sold = amount invested ÷ post-money valuation cap $1,000,000 ÷ $10,000,000 cap = 10% of the company (before the next priced round)
2Add up your SAFEs
Each post-money SAFE takes its percentage from you, the founders. They stack.
| SAFE | Amount | Post-money cap | Ownership |
|---|---|---|---|
| Angel round | $250,000 | $5,000,000 | 5% |
| Pre-seed fund | $750,000 | $10,000,000 | 7.5% |
| Total sold | $1,000,000 | 12.5% |
That 12.5% is diluted a little more at the next priced round, and it doesn't include the option pool or the new round itself. Add up every SAFE before you raise the next one.
3Watch the option-pool shuffle
At a priced round, investors often ask for an option pool of, say, 10 to 15% after the round, created before their money comes in. That means it comes out of the existing shareholders, mostly you, not them.
So a $12M pre-money with a new 10% pool is really a lower "effective" pre-money for you. When you compare offers, compare your ownership after everything, not the headline valuation. A higher valuation with a big pool top-up can be worth less than a lower, clean one.
Act as a startup finance analyst. My cap table: founders [shares], option pool [granted / unissued], SAFEs: [amount @ post-money cap each]. Offer: $[raise] at $[pre-money] pre-money with a [X]% post-round option pool. Show my ownership today, after the SAFEs convert, and after the round, as tables that add up to 100%. State every assumption. Follow YC post-money SAFE conventions. Tell me where your math is simplified compared with a lawyer's closing cap table.
4Know the terms that matter at seed
| Term | Common at seed | Push back if you see |
|---|---|---|
| Liquidation preference | 1x, non-participating | More than 1x, or "participating" |
| Board | Founders control the board | Investors control the board at seed |
| Pro rata rights | For the lead, sometimes others | "Super pro rata" (more than their share) |
| Anti-dilution | Broad-based weighted average | Full ratchet |
| Protective provisions | Standard list (selling the company, new senior shares) | Vetoes over hiring, budgets or day-to-day decisions |
| No-shop | 30 to 45 days | Long exclusivity with no deadline to close |
5Bring sharp questions to your lawyer
Startup lawyers often offer fixed-fee SAFE reviews. Go in prepared:
1. What will I own after this round, including the pool and all SAFEs? 2. The pool target is [X]% post. Can we size it to our 18-month hiring plan instead? 3. Is anything here off-market for a seed round in our location? 4. Which terms would you push back on first, and which would you leave alone? 5. What does this mean for my taxes (for example a QSBS or 83(b) question), and what's the deadline? 6. Are there side letters, pro rata rights or most-favored-nation clauses I'm agreeing to?
Negotiate the few terms that matter: valuation, the pool, control and preference. Don't relitigate every standard clause.
Use YC's official SAFE documents, the formulas on this page, and a fixed-fee lawyer review.
The term-sheet skill explains every term against a seed-stage glossary, runs a tested SAFE and priced-round calculator, and writes your lawyer questions.
Bring your term sheet to the Raise Sprint or a 1:1 session and walk through it live before you call your lawyer.
Do it in StartWise →What's next
Signed? Read the first 30 days after you close: the filings, the thank-yous and update number one. Everything we offer for free is in one place.
Revenue, costs, team and funding in one guided flow, with scenarios, runway and SAFE conversion done right. The free steps above still work. This is the fast way.