Here's how a SAFE plays out. You invest $25,000 on a post-money SAFE with a $5M cap. When the company raises its priced round, your SAFE converts to shares as if the company were worth $5M — so your $25,000 buys 0.5% of the company, locked in regardless of how high the actual round prices. If the round comes in below your cap, a discount (commonly 20%) usually applies instead, so you still come in cheaper than the new money. The instrument is short, standardized, and converts automatically — there's no debt, no interest, and no maturity date to manage.
The most important distinction today is pre-money versus post-money SAFEs. YC's original 2013 SAFE was pre-money; its 2018 revision is post-money, and post-money is now the default. The difference is who absorbs dilution from other SAFEs: with a post-money SAFE, your ownership percentage is fixed at signing and isn't diluted by other SAFEs in the same round, which makes your stake far more predictable. The flip side is that stacking many post-money SAFEs can dilute founders more than they expect. Either way, SAFEs sit on the cap table as outstanding instruments until that first priced round converts them all into actual shares.