SAFE vs. Convertible Note: Which to Choose?

The Early-Stage Funding Instrument Dilemma

For your first funding round, valuing your company can be difficult. To solve this, startups often use convertible instruments—debt or warrants that convert into equity at a later, priced round. The two most common instruments are the <a href="/startup-finance-glossary/what-is-safe-simple-agreement-for-future-equity">SAFE (Simple Agreement for Future Equity)</a> and the <a href="/startup-finance-glossary/what-is-convertible-note">Convertible Note</a>.

While they achieve a similar goal, they have key legal and financial differences. Choosing the right one depends on your specific situation and the preferences of your investors.

Key Differences to Consider

• A Convertible Note is a debt instrument with an interest rate and a maturity date. A SAFE is not debt; it is a warrant for future equity and has no interest or maturity date.
• Because a note has a maturity date, it carries a risk that if you don't raise a priced round by that date, the investors could demand their money back.
• SAFEs are generally simpler, shorter documents, making them faster and cheaper from a legal perspective.
• Convertible Notes are more traditional and may be better understood by investors who are not from the core tech ecosystem.

Our Recommendation: Prefer SAFEs for Speed and Simplicity

For most early-stage tech startups raising from sophisticated angels and VCs, the SAFE has become the preferred instrument due to its founder-friendly nature and simplicity. The lack of a maturity date removes a significant point of stress from the fundraising process.

However, it's crucial to understand your investors' preferences. Our fundraising advisory and legal teams can help you navigate this choice, explain the pros and cons to your investors, and draft the appropriate documents for your round.