Chitravik Studio raised Rs 3 crore on a SAFE with a Rs 30 crore post-money cap and a 20% discount. The Series A prices the company at Rs 80 crore pre-money with Rs 20 crore raised. Does the cap or the discount apply, and what does the SAFE holder own after the round? What changes if the Series A is at Rs 30 crore pre-money?

At an Rs 80 crore pre-money the cap applies and the SAFE holder owns 8.0% after the round; at Rs 30 crore the discount applies and it owns 7.5%. The cap price is Rs 30 a share; the Rs 80 round less 20% is Rs 64, so Rs 3 crore buys 10 lakh shares, worth Rs 8 crore at the round price. At Rs 30 crore pre the discounted price, Rs 23.33, is below Rs 30, so the discount wins.

Imagine you pre-booked a flat with a builder who promised you either 20% off the launch price or a ceiling price, whichever is better for you. If the launch price is high, the ceiling protects you; if it is low, the discount does. A SAFESimple agreement for future equity: money given now that converts into shares at the next priced round, usually at a capped valuation or a discount to the round price. works the same way: it converts at the lower of the cap price and the discounted round price, because a lower price buys more shares. So compute both and take the lower.

The cap price first. A Rs 30 crore post-money cap on a Rs 3 crore SAFE means the SAFE becomes 10% of the company before the round: 10 lakh new shares beside the founders' 90 lakh, at Rs 30 a share. The round price is Rs 80 crore over 1 crore shares, Rs 80 a share, and 20% off is Rs 64. Rs 30 is lower, so the cap applies. The Series A's Rs 20 crore buys 25 lakh shares. After the round there are 1.25 crore shares: founders 72%, SAFE 8%, Series A 20%. The SAFE's 10 lakh shares are worth Rs 8 crore at the round price.

Now the round price is low. The pre-money includes the SAFE's shares, and their number depends on the price, so solve the two together: the round price P times all shares before the new money equals Rs 30 crore, with the SAFE converting at 0.8P. That gives a round price of Rs 29.17 and a discounted price of Rs 23.33, below the Rs 30 cap price, so the discount applies. Rs 3 crore at Rs 23.33 buys 12.86 lakh shares. The Series A's Rs 20 crore buys 68.57 lakh shares. After the round: founders 52.5%, SAFE 7.5%, Series A 40.0%.

The cap and the discount give the same price when the round price is Rs 30 divided by 0.8, Rs 37.50, an Rs 37.5 crore pre-money. Above that the cap protects the angel and the founders give up more than the discount alone would cost them; below it the discount sets the price. In the high case the angel's Rs 3 crore is worth Rs 8 crore at the round price, which is the reward for funding early. Founders should model the cap's dilution before signing, because it is fixed at 10% however well the company does. The limit: real SAFE documents differ on whether the option pool and other SAFEs count in the capitalisation, so read the definitions in the actual document.