SAFE notes – Simple Agreements for Future Equity – have become one of the most common ways Australian startups raise early-stage capital. They let investors put money in today in exchange for the right to receive equity at a future priced round, without requiring both parties to agree on a current valuation upfront.
That last part is what makes them useful. But it also creates one of the most common points of confusion for founders: if you’re not setting a valuation now, how do you set the valuation cap?
Thinking through a raise and want a second opinion on your numbers? Book a free call with Standard Ledger before you start conversations with investors.
What Is a Valuation Cap?
The valuation cap sets the maximum price at which a SAFE will convert into equity during a future priced round. It’s not your company’s current valuation – it’s a ceiling on the future valuation at which your early backers will convert their investment into shares.
If your company raises a Series A at a valuation above the cap, your SAFE investors convert at the cap price rather than the round price. That gives them a better deal than new investors coming in at the higher valuation – which is the incentive for backing you early, before the risk was de-risked.
This structure lets both parties avoid prolonged negotiations about what the business is worth today, and instead agree on a future reference point that rewards early believers without anchoring the company to a premature valuation.
Typical Ranges by Stage
Setting your cap is part data, part judgement. As a rough guide, caps by stage tend to look something like this:
- Pre-revenue or MVP stage: $1M-$5M
- Early traction – paying customers or strong user growth: $5M-$9M
- Approaching seed with clear product-market fit: $9M-$15M+
These are market norms, not rules. The right cap for your business depends on your metrics, your sector and what comparable startups are raising at. Use what you can point to – revenue, active users, partnerships, a genuine technology edge – to build a credible narrative around whatever number you land on.
If you want an independent, defensible view of where your business sits, Standard Ledger’s valuation service can help you stress-test your cap before you put it in front of investors.
Research and Benchmarking
Before you set a number, do your homework. Talk to founders who’ve recently raised on SAFEs in your space, speak to advisers and ask investors what they’re seeing at your stage. Australian ecosystem norms may differ from US benchmarks you find online – particularly at the lower end of the cap range.
Avoid setting a cap wildly out of step with comparable raises unless you have exceptional traction or early backing that genuinely justifies a premium. Investors will benchmark you regardless, and an indefensible cap is a friction point before the conversation has even started.
The Dilution Trade-Off
A lower cap rewards early investors more generously – they convert at a lower price, which means more shares for their money. That’s good for getting investors across the line early, but it means you’re giving away more future equity, which can complicate later rounds and reduce your ownership at a point when your company is worth significantly more.
A higher cap preserves your ownership but risks deterring investors or stretching negotiations. One way to balance this is to offer a discount rate of 10-20% alongside the cap – investors convert at whichever gives them the better deal, the cap or the discount. It broadens appeal without requiring you to drop the cap significantly.
“Setting a SAFE valuation cap is about striking the right balance between rewarding early supporters and preserving future founders’ equity – it’s not just a number, it’s a strategic signal to investors and your own team.”
- Thomas Worden, Client CFO, Standard Ledger
Use Standard Templates and Run the Scenarios
SAFEs are simpler than priced equity rounds, but clarity still matters. Use a standard Australian SAFE template – the AIC or Airtree versions are widely accepted – and clearly state the valuation cap and any discount rate.
Before you finalise anything, run the conversion scenarios. Model what happens to your cap table if your Series A comes in at 1x, 2x and 3x your SAFE cap. Understand the dilution at each scenario and make sure you’re comfortable with the outcome. Avoid custom clauses unless your lawyer has a specific reason to recommend them.
If the maths is getting complex, that’s a sign it’s worth getting an adviser across your structure before you sign anything.
Ready to structure your SAFE note with confidence? Standard Ledger works with founders across Australia on capital raises, valuations and strategic financing decisions. Book a free call and we’ll help you work through the right approach for your stage.
