Early-stage startups often raise capital before they’re ready for a priced equity round. In these cases, two common instruments dominate: SAFEs (Simple Agreements for Future Equity) and convertible notes. While both offer fast, flexible fundraising solutions, they carry different implications for founders and investors. Here’s what you need to know.
1. What is a SAFE?
A SAFE is a legal agreement where an investor provides capital in exchange for the right to receive equity at a future priced round, typically with a discount or valuation cap. Created by Y Combinator, SAFEs are designed to be founder-friendly and simple.
Pros:
Simple and fast to execute
No interest or maturity date
Lower legal costs
Cons:
Less favorable for investors (no repayment or fixed terms)
Can create cap table complexity if not managed well
2. What is a Convertible Note?
A convertible note is a debt instrument that converts into equity during a future financing round, usually with interest and a maturity date. It bridges the gap between early capital needs and formal valuation.
Pros:
More investor protection (interest, maturity)
Familiar structure to many investors
Flexibility in negotiation
Cons:
Adds debt to the balance sheet
Legal complexity and cost higher than a SAFE
Potential pressure from maturity timelines
3. Key Differences to Consider
| Feature | SAFE | Convertible Note |
|---|---|---|
| Legal Form | Equity Agreement | Debt Instrument |
| Maturity Date | No | Yes |
| Interest | None | Yes |
| Founder-Friendly | High | Medium |
| Investor Protections | Lower | Higher |
4. When to Use Each
Use a SAFE if you’re in a very early stage, want to minimize legal complexity, and are raising from friendly or early-stage investors.
Use a Convertible Note if your investors require more structure, you’re closer to a priced round, or want to signal more maturity.
5. Strategic Guidance Matters
Choosing the right instrument affects dilution, valuation, and relationships with investors. It’s not just a legal choice—it’s a strategic one.
At Valvian Capital, we help startups choose the best fundraising tools for their stage and goals. From structuring SAFEs and notes to building investor-ready models and managing cap tables, our team ensures you’re positioned for long-term success.
Reach out to Valvian Capital to get expert support on your next funding round and raise capital with confidence.
