I’m going to tell you something that might sting a little. That SAFE agreement you’re so proud of? The one you downloaded straight from Y Combinator’s website and sent out to a dozen investors? It might be the very thing that’s killing your fundraising round before it even starts.
I’ve seen it happen more times than I can count. I’ve made the mistake myself. In fact, I failed 14 times before I finally understood what was going on. Fourteen rounds of my own startups and those I advised that went nowhere, all because we treated the SAFE like a simple, one-size-fits-all document. It’s not. It’s a negotiation, and most founders are walking into it completely unarmed.
Let’s be clear. I’m not anti-SAFE. I’ve invested in over 200 companies, including giants like Anthropic and OpenAI, and a good number of them used SAFEs. They can be a fantastic tool to close capital quickly. But the biggest lie in Silicon Valley is that they are “standard.” There is no standard. There’s just what you can negotiate. And what you negotiate depends on understanding what the person on the other side of the table—the investor—is actually thinking.
The Investor’s Mental Math
When an investor looks at your SAFE, they aren’t just seeing a promise of future equity. They’re running a series of calculations in their head. They’re thinking about dilution, risk, and opportunity cost. They’re wondering how this SAFE will convert in the next round, and the round after that. They’re thinking about their own fund’s economics.
Here’s a peek into that internal monologue:
“What’s the real valuation cap?” The valuation cap is the most obvious number on the SAFE, but it’s not the only one that matters. An investor is also looking at the discount rate, and any MFN (Most Favored Nation) clauses. A high cap with a high discount might be less attractive than a lower cap with no discount. It all depends on their model for your future growth.
“How much of the company am I actually buying?” This is the million-dollar question. A SAFE doesn’t give the investor a clear percentage of ownership. It’s a floating target. They’re trying to predict the valuation of your next priced round to figure out what their stake will be. If they think you’re going to raise at a massive valuation, their SAFE might convert to a tiny sliver of equity. That’s a big risk for them.
“Am I getting a fair deal compared to other investors?” This is where the MFN clause comes in. If you give a later investor a better deal, the MFN clause allows the earlier investor to get the same terms. It’s a way for them to protect themselves from being diluted by a desperate founder who gives away the farm in a later round.
“What are the chances this company will actually raise a priced round?” A SAFE is only valuable if it converts. If you never raise a priced round, the investor’s money is stuck in limbo. They’re looking at your team, your traction, and your market to gauge the likelihood of you hitting that next milestone.
The 14 Failures: My Personal SAFE Graveyard
I learned these lessons the hard way. That number, 14, isn’t a rhetorical device. It’s a real tally of fundraising rounds for my own companies or those I was advising that sputtered and died. Each one was a painful, expensive education in the nuances of early-stage financing. Let me save you the tuition.
Here are the most common traps I fell into, and that I see founders fall into every single day:
1. The “Standard” SAFE Seduction: My first few failures were born of pure naivety. I thought “standard” meant “non-negotiable.” I’d send the YC template to an investor and when they’d push back on the cap, I’d get defensive. I didn’t understand that the template is a starting point, not a sacred text. An investor pushing back isn’t disrespecting you; they’re opening a negotiation. Your job is to be ready for it.
2. The Valuation Cap Obsession: I used to think the valuation cap was the only thing that mattered. I’d fight tooth and nail for a $10M cap instead of an $8M cap, thinking I was protecting my equity. But I was blind to the other levers. I once accepted a high cap but gave away a 30% discount. When we raised our Series A, that discount ended up being far more dilutive than a slightly lower cap would have been. It was a rookie mistake. You have to model it out. Don’t just fixate on one number.
3. Ignoring the Pro Rata Rights: This one is subtle, but it can be a killer. Pro rata rights give an investor the ability to maintain their ownership percentage in future rounds. For a founder, giving away pro rata rights in a SAFE can be dangerous. It can create a situation where your early investors have a right to take up a huge chunk of your next round, crowding out new, strategic investors. I once had a deal almost fall apart because a new lead investor for our Series A was spooked by the pro rata rights we had given to our SAFE holders. We had to spend weeks renegotiating with our early backers. It was a nightmare.
4. The MFN Mess: The Most Favored Nation clause seems harmless enough. It just says that if you give a later investor a better deal, the earlier investors get that deal too. But it can create a race to the bottom. If you get desperate and give one investor a sweetheart deal, you have to give it to everyone. I’ve seen this turn a fundraising round into a chaotic mess of competing interests. Be very, very careful about who you give MFN rights to.
The Framework I Use Now
After 14 failures, I developed a framework. It’s not a magic formula, but it’s a systematic way to approach SAFE negotiations that has served me well in my own ventures and in the 200+ investments I’ve made. It’s about being prepared, knowing your numbers, and understanding the person on the other side of the table.
Here’s what I do:
I have three SAFE versions ready to go: A “dream” version with aggressive, founder-friendly terms. A “realistic” version that I think is fair for both sides. And a “fallback” version that I’m willing to accept if I need to close the round. I know my walk-away points before I even start the conversation.
I model out every scenario: I have a spreadsheet that shows me exactly how different valuation caps, discounts, and pro rata rights will affect my ownership at the Series A, Series B, and beyond. I can see the impact of every decision in black and white. This is my secret weapon. It takes the emotion out of the negotiation and turns it into a math problem.
I talk to investors before I send them documents: I don’t just blast out a SAFE to a list of VCs. I have conversations. I build relationships. I try to understand what they’re looking for and what their concerns are. By the time I send them the SAFE, it’s not a cold document. It’s a confirmation of a conversation we’ve already had.
This isn’t about tricking investors. It’s about being a professional. It’s about understanding that fundraising is a game, and the SAFE is one of the most important pieces on the board. Don’t just play the game. Win it.
It took me 14 failed rounds to figure this out. Don’t make my mistakes. The biggest lie in Silicon Valley is that there’s a “standard” way to do things. There isn’t. There’s just the way that works for you, your company, and your investors. Your job is to find it.
Frequently Asked Questions
What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
How has this view evolved over time?
My thinking on most topics has changed significantly over the years. Early in my career, I held many conventional views that experience proved wrong. I try to update my beliefs when the evidence changes.
How can I apply this thinking to my own situation?
Start by identifying the core principle behind the opinion, not the specific example. Then ask yourself: does this principle apply to my context? If yes, test it in a small, low-risk way before going all in.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.