SAFE vs Convertible Notes
Understand the differences between SAFE agreements and convertible notes and when each structure is typically used.
Most early-stage startups raise capital using one of two instruments: a SAFE (Simple Agreement for Future Equity) or a convertible note. Both convert into equity later, but they behave differently in important ways.
What is a SAFE?
A SAFE is a financing instrument introduced by Y Combinator in 2013. It is not debt. There is no interest, no maturity date, and no obligation to repay. A SAFE simply converts into equity at the next priced round, typically with a valuation cap and/or discount.
What is a convertible note?
A convertible note is a short-term debt instrument that converts into equity at the next priced round. Unlike a SAFE, a note has an interest rate (typically 4–8%) and a maturity date (usually 18–24 months).
The key differences
| SAFE | Convertible Note | |
|---|---|---|
| Debt or equity? | Neither (warrant-like) | Debt |
| Interest rate | None | 4–8% |
| Maturity date | None | 18–24 months |
| Conversion | Next priced round | Next priced round or maturity |
| Founder risk | Lower | Higher (repayment risk at maturity) |
| Investor protection | Lower | Higher (interest + maturity) |
When to use which
- Use a SAFE for US-based seed rounds with sophisticated investors.
- Use a convertible note if your investors prefer debt-like protection, or if you’re raising in a market where SAFEs are less standard.
The bottom line
In the US, SAFEs have become the default at seed. Convertible notes still exist, particularly in international markets and in late-bridge financings. Whichever you choose, the conversion math is what matters — model it before signing.