What happens to my SAFEs and convertible notes if my company is acquired, and who gets paid first?

If you raised on SAFEs and a buyer shows up before you ever priced a round, the SAFEs do not disappear. The standard Y Combinator SAFE treats a sale of the company as a "Liquidity Event" and says what each holder gets. The answer depends on your sale price, your valuation caps, and what else sits on the cap table.

What the SAFE says

For a Liquidity Event, the SAFE entitles the investor to the greater of two amounts. The first is the Purchase Amount, which the document calls the Cash-Out Amount. The second is the Conversion Amount, which is what the investor would receive if the SAFE converted into common stock at the price set by the valuation cap or discount in that SAFE.

Put plainly, a SAFE holder gets their money back or their share of the sale, whichever is bigger.

Who gets paid first

The standard form sets a priority order for the Cash-Out Amount:

• Debt and creditor claims come first, including convertible notes that have not converted.
• Cash-Out Amounts for SAFEs are paid on par with preferred stock. If there is not enough money, they share pro rata.
• Common stock comes after the Cash-Out Amount.

The Conversion Amount ranks differently. It sits on par with common stock. A SAFE holder who takes the as-converted route is paid like a common holder, not like a creditor.

A convertible note is debt until it converts. Its own terms control: maturity, interest, whether the holder can choose repayment or conversion, and what a change of control triggers. Read the note, not a summary of it.

A hypothetical, kept simple

Say you sold SAFEs totalling $1M on a $10M post-money cap, so the investors own about 10 percent as converted. No debt, no preferred, no fees.

Sale at $4M: the as-converted share is $400K, so the investors take the $1M Cash-Out Amount. That is 25 percent of the price for 10 percent of the company. Common holders share the remaining $3M.

Sale at $10M: both routes give about $1M.

Sale at $30M: the as-converted share is about $3M, so the investors convert and are paid alongside common.

At small prices the SAFEs act like a lump of debt. Now imagine four separate $1M SAFEs. At a $4M sale they would take the whole $4M, and common would get nothing. The numbers are illustrative, and real caps, discounts and other holders change them.

Build this before you answer an LOI

• List every SAFE and note: amount, cap, discount, any MFN clause, and the change of control language.
• Run the waterfall at three sale prices: below your total SAFE money, near your caps, and well above them.
• Check who else is ahead of common: debt, any preferred, and transaction costs.
• Ask how the buyer's offer treats the SAFEs. If it is a stock deal, ask who decides the value of what they receive.

A buyer will do this math in diligence. You should do it first.

This is general information, not legal or tax advice. Have counsel read your actual documents.

Related reading: How does a post-money SAFE cap work when multiple angels invest at different check sizes; What Are Liquidation Preferences and Who Gets Paid in a Sale; What is a letter of intent (LOI) in M&A; How do I prepare my company for acquisition.