If you're new to investing, newsflash: you're about to hear the word "SAFE" a lot.

It's a popular instrument for early-stage investments. But, there's a nuance that's often overlooked.

When you see "$5M valuation cap on a SAFE”, your FIRST question should be…pre-money or post-money?

Crazy enough, that word alone can (and will) dramatically change your returns.

Pre vs. Post and why it matters

Post-money is straightforward. If you invest $5k in a $5M post-money SAFE, you're buying exactly 0.1% of the company. Company exits at $50M? You get $50k back - a clean 10x multiple.

Pre-money is different. Your ownership depends on how much total money the company raises before SAFEs convert. Your actual multiple depends on variables you can't control.

And this is where your returns can get crushed.

The math that kills your multiples

Let's say you invest $5k on a $5M pre-money SAFE. You model a $50M exit = 10x return.

But your actual multiple depends on how much more the founder raises after you invest.

Scenario 1: Founder raises $300k total. You convert at 0.094%. A $50M exit = $47k return = 9.4x multiple.

Scenario 2: Founder raises $2M total. You convert at 0.071%. Same $50M exit = $35.5k return = 7.1x multiple.

Same SAFE and same exit, but your multiple dropped from 9.4x to 7.1x based on something you couldn't control.

And realistically, you won't know which scenario you're in until 18+ months later when conversion happens.

I've seen angels end up with 30-50% lower multiples than they calculated, and it's not because founders were dishonest. It's because they raised more than initially planned - and every additional dollar on a pre-money SAFE reduces your returns.

The post-money solution

With post-money, when you invest $5k at a $5M cap, you're locking in 0.1% ownership. Period.

Company exits at $50M? You get $50k back - a 10x multiple (assuming no priced round has been raised), regardless of what happened after you invested.

Other SAFE holders also won't dilute you; only the next priced round will.

This is why post-money SAFEs became the standard. You can actually calculate your ownership before you wire the money.

What to do about it

Before you sign any SAFE, ask: is it pre-money or post-money?

If it's post-money, you're good. You know how much of the company you’ll own.

If it's pre-money, ask the founder: "How much are you planning to raise in this round?" And then think through what would happen if the founder decides to double that.

Stay SAFE out there.