Guide for founders
YC SAFE vs Crowd SAFE
Fools.com helps founders raise a friends, family, and fools round on a Crowd SAFE. This guide compares a Crowd SAFE with YC's post-money SAFE. It shows how a Fools round fits under a later YC deal.
Updated
What is a Crowd SAFE?
A Crowd SAFE is a SAFE sold online under Regulation Crowdfunding to many investors. It converts into stock at a later priced round or acquisition. YC's post-money SAFE is sold privately, and YC says its investors should be accredited.
YC post-money SAFE and Crowd SAFE side by side
| Term | YC post-money SAFE | Crowd SAFE on Reg CF |
|---|---|---|
| Where it's sold | Privately, founder to investor | Online through one SEC-registered funding portal or broker-dealer, with a public Form C |
| Who can invest | YC says SAFE investors should be accredited | Accredited and non-accredited investors. Non-accredited investors have 12-month limits. |
| Raise limit | None in the SAFE | Reg CF allows $5M per issuer in 12 months. |
| Valuation cap and discount | Post-money cap, discount, or uncapped MFN forms | A cap, a discount, or both. Check whether the template's cap is post-money. |
| MFN | A separate YC form. It takes the best terms of later SAFEs. | Template-specific |
| Pro rata | Optional side letter | Template-specific |
| Equity financing | Converts automatically into preferred | Some templates let the company convert or roll the SAFE forward |
| What it converts into | Preferred stock in the round | Often a non-voting series that mirrors the round's stock |
| Voting and information rights | None in the SAFE. A side letter can add them. | Usually none. A nominee, proxy, or CEO power of attorney votes. |
| Transfer | Needs company consent, except to affiliates | Generally can't be resold for one year. Template limits also apply. |
| Ongoing duties | None under the SAFE | Annual Form C-AR within 120 days of fiscal year end until a termination test is met |
On Fools, investors are pooled. They stay off the company's working cap table until a conversion event. They hold no voting rights. The company owes them the annual report Reg CF requires. How a Crowd SAFE works on Fools
Does a Fools round change a later YC deal?
A Fools round raised before YC comes out of the founders' share. It doesn't shrink YC's 7%. YC's standard deal is $125k for a fixed 7% plus $375k on an uncapped MFN SAFE. YC sets the 7% after all SAFEs and other convertible instruments convert.
“YC's $125k SAFE will convert in the priced round into 7% of the company's equity (including any existing option pool) after all the SAFEs and other convertible instruments have converted in conjunction with the priced round.”
When YC's MFN window matters
YC's $375k uncapped MFN SAFE converts on the most favorable terms of SAFEs issued between its MFN start date and the priced round. That usually means the lowest cap. A discount counts too. YC puts the MFN start date around the start of the batch.
A Fools round closed before that date sits outside the window. A Fools round closed inside it at a cap below later SAFEs could set YC's price. $375k at a $5M cap is 7.5% of the company. At a $20M cap it is 1.875%.
Fools round cap calculator
The default example raises $100k at a $5M cap. That is 2% of the company. A $21.6M next round is 4.32x the cap. A $124,000 raise at a $7M cap is 1.77% dilution. The next round is then 3.09x the cap.
YC then takes 7%. A $1.5M seed on SAFEs at a $20M cap is 7.5%. YC's $375k MFN converts at that cap to 1.875%. Founders hold 81.625% before the priced round. Without the Fools round they would hold 83.625%. After a priced round selling 20% plus a 10% new pool, founders hold 57.14%. Without the Fools round they would hold 58.54%.
- Founder dilution
- 2.00%
- A $100k raise at a $5M cap.
- Next round as a multiple of the cap
- 4.32x
- A $21.6M next round against a $5M cap.
Founder ownership by stage
| Holder | Start | Fools | YC | Seed | Priced |
|---|---|---|---|---|---|
| Founders | 100% | 98.00% | 91.00% | 81.63% | 57.14% |
| Fools investors | 0% | 2.00% | 2.00% | 2.00% | 1.40% |
| YC 7% | 0% | 0% | 7.00% | 7.00% | 4.90% |
| YC MFN | 0% | 0% | Set later | 1.88% | 1.31% |
| Seed SAFEs | 0% | 0% | 0% | 7.50% | 5.25% |
| Priced-round investors | 0% | 0% | 0% | 0% | 20.00% |
| Option pool | 0% | 0% | 0% | 0% | 10.00% |
- By the seed, founders hold 81.63% with the Fools round and 83.63% without it.
- After the priced round, founders hold 57.14% with the Fools round and 58.54% without it.
- The $5M cap sets the Fools price.
- YC keeps 7.00% either way. YC sets its fixed stake after the other SAFEs convert.
- YC's MFN converts at the $20M seed SAFE cap.
The calculator shows arithmetic only. It assumes the Crowd SAFE uses a post-money cap and converts at the priced round.
Fools round terms and a later YC deal
| Term | What it means for a later YC deal |
|---|---|
| Raise amount | The amount raised in 12 months sets the financial-statement tier. For $124,000 or less, the principal executive officer certifies the financial statements. The officer also certifies the company's total income, taxable income, and total tax from its federal income tax return. Above $124,000 and up to $618,000, an independent accountant reviews the statements. Above $618,000 they are audited. A company raising under Regulation Crowdfunding for the first time can use reviewed statements up to $1,235,000. 17 CFR 227.201(t) sets the tiers. |
| Valuation cap | A higher cap means less dilution. A $124,000 raise is 1.77% at a $7M cap and 2.48% at a $5M cap. A later SAFE cap or priced round below the Fools cap reads as a down round. A $21.6M next round is 3.09x a $7M cap and 4.32x a $5M cap. |
| Discount % | Investors get the better of the cap or the discount. A discount rarely matters when the next round prices well above the cap. A discount also counts as a more favorable term under YC's MFN SAFE. |
| Most favored nation | With a cap set, investors already know their price. A broad MFN could reach later SAFEs, possibly including YC's $125k-for-7% SAFE, depending on the clause. YC's MFN form needs written notice and a 10-day election per holder. That is a burden for a round with many holders. |
| Pro rata rights | YC puts pro rata in an optional side letter and says "An investor buying a $500k SAFE has a good case for pro rata rights versus one who is investing $10k." Many pro rata rights crowd a seed lead's allocation. |
| Timing | YC's MFN covers SAFEs issued from its MFN start date to the priced round. |
| Cap type, conversion, voting series, nominee | These vary by intermediary. The calculator assumes a post-money cap that converts at the priced round. |
Does crowdfunding affect YC?
A Reg CF round doesn't change YC's 7%. YC sets the 7% after SAFEs convert. Timing against YC's MFN window matters.
How do a Crowd SAFE and a YC SAFE differ?
Both are SAFEs that convert into stock at a later priced round. A YC SAFE is sold privately, and YC says its investors should be accredited. A Crowd SAFE is sold online under Reg CF through one SEC-registered funding portal or broker-dealer. Accredited and non-accredited investors can invest. Non-accredited investors have yearly limits. A Crowd SAFE also brings an annual Form C-AR report. The side-by-side table on this page lists each term.
How much can a Fools round raise?
Regulation Crowdfunding allows $5M per company in 12 months. Fools sets no cap below that. The amount raised in 12 months sets the financial-statement tier. For $124,000 or less, the principal executive officer certifies the financial statements. The officer also certifies the company's total income, taxable income, and total tax from its federal income tax return. Above $124,000 and up to $618,000, an independent accountant reviews the statements. Above $618,000 they are audited. A company raising under Regulation Crowdfunding for the first time can use reviewed statements up to $1,235,000. Each tier counts all Regulation Crowdfunding sales in the prior 12 months and this round's maximum. The maximum includes oversubscription.
17 CFR 227.201(t) sets these tiers.
This page is not legal or investment advice. Talk to a securities lawyer before you raise.