Here is a more detailed example of the potential upside available to an investor in an early stage unpriced route.

The capitalization table of the company at launch before any external investment is simple. It has 10 million common shares held by a couple of founders at $1 per share.

Let's assume the company now has an unpriced round and three investors invest in the company, a total of $1.5 million via a SAFE. As a recap, the safe has no debt qualities, so it is simply held until a trigger event takes place and the investment sum is converted into equity.

Investor A here has negotiated a 20% discount rate, great for them, so when the next priced round happens, he will be able to purchase shares for 20% less. The new investors investing in the same priced round. Investor B has a $10 million valuation cap, so her half a million dollar investments will be converted into equity at a company valuation no higher than $10 million.

Investor C has both, so will have the option to use either the discounts or the cap, whichever is more attractive to them. Now, a priced round takes place and the company raises a series a round of $10 million at a $15 million pre-money valuation or a dollar 50 per share. How did we get to that dollar 50? It's the $15 million pre-money valuation divided by 10 million shares outstanding. This priced round is also the trigger event for the unpriced round safe holders, so we can calculate their outcomes. Investor A with a 20% discount will convert shares at a dollar 20, that's the $1 50 share price, but discounted by 20%. Investor B. With a $10 million valuation cap, we'll be able to buy in at $1 per share. That's the $10 million valuation cap divided by the 10 million shares outstanding. And lastly, investor C will be able to buy in at $1 as well, which is the most attractive of the two options? The two options being the 20% discount rate for a price of one 20 or the $10 million valuation cap, which gave a price of $1. Buying at $1 Is the most attractive. We like to buy low, thus the unpriced round. SAFE investors got their equity at a later date than the unpriced funding round when they invested, but they are compensated for the weight with a discount rate or valuation cap to reward them for their early investments. Both the discount rates and the valuation cap are meant to incentivize investors to come in early at the seed round to help launch and build the company. At the priced round, the SAFE investors convert their shares at a dollar 20 or a dollar, which yields the investors more shares than they would've received if they didn't have these terms and would have to convert at the higher price of a $1.50.