SAFE Notes vs Convertible Notes: Pros and Cons

When raising early-stage capital, startups often choose between SAFE notes and convertible notes. Both instruments allow you to raise money without immediately setting a valuation, but they have important differences.

What are SAFE Notes?

SAFE (Simple Agreement for Future Equity) notes were created by Y Combinator as a simpler alternative to convertible notes.

Key Features:

• No interest rate or maturity date
• Conversion triggers based on future equity rounds
• Valuation cap and/or discount rate
• Simpler legal structure

What are Convertible Notes?

Convertible notes are debt instruments that convert into equity under specific conditions.

Key Features:

• Interest rate (typically 4-8% annually)
• Maturity date (usually 12-24 months)
• Conversion triggers similar to SAFEs
• Valuation cap and/or discount rate

Use our Equity Dilution Calculator to model how different terms affect your ownership.