SAFE Notes (Simple Agreement for Future Equity) are agreements that allow for an investor to invest money in a company for future equity rather than having a priced round with a valuation placed on the company at the time of investment. SAFE notes can have either a cap or discount but more commonly they will have both to calculate the equity of the note holder when there is a priced round (generally Series A which for simplicity I’ll use for the rest of the post). The note will convert to equity at the time of Series A investment and the note converts at the lower per share price at either the cap or the discount applied to the Series A share price.
Where Pre-SAFE and Post-SAFE notes vary is when and how the equity conversion is calculated. Pre-SAFE notes were originally created by Y-Combinator in 2013 to replace convertible notes by simplifying things. There is no interest or set maturity date of a SAFE note. Equity conversion for Pre-SAFE notes are calculated based on the outstanding shares pre-money of the notes, while Post-SAFE notes equity conversion happens post money of all investments prior to the Series A investment. Additionally, there are pro-ratas. For pre-SAFE notes they were included in the note, where the investor could purchase additional shares at the following funding round at the new valued price up to their original pre-money ownership stake. Where the post-SAFE notes differ is the pro-rata is an optional side letter that takes place at the next funding round. I.e. Series B instead of Series A.