![]() ![]() The SAFE can convert when you raise any amount of equity investment. The difference here is that while a convertible note can allow for the conversion into the current round of stock or a future financing event, a SAFE only allows for a conversion into the next round of financing.Īlso, convertible notes typically trigger only when a “qualifying transaction takes place” (more than a minimum amount dictated on the agreement) or when both parties agree on the conversion. Different Points of Conversion to Equityīoth SAFE and convertible notes allow for a conversion into equity. Because simplicity is one of its primary goals, SAFE offers a straightforward option: SAFE doesn’t carry an interest rate and doesn’t have a maturity date.Ģ. On the flip side, a SAFE is a 5-page document that was created to streamline the seed investment process. SAFE Offers Simplicity by Minimizing TermsĪs pointed out in the definition, convertible notes can be intricate and lengthy. Let’s take a look at seven key variables you should use to determine which type of investment will suit your startup’s needs and increase your access to funding. How can startup founders decide between SAFE and convertible notes? With those in mind, looking at the differences will help an entrepreneur consider their pros and cons when determining their preferred seed investment terms. Also, both options carry a discount on the next round (or current round for convertible notes), so neither presents a clear advantage. Both act as a viable way to help startups overcome their current big hurdle in growing or scaling to reach the milestones that warrant a Series A round. ![]() There are some similarities between SAFE and convertible notes investments. At its core, a SAFE is a warrant to purchase stock in a future priced round. SAFE is an acronym that stands for “simple agreement for future equity” and was created by the Silicon Valley accelerator Y Combinator as a new financial instrument to simplify seed investment. The overall consensus about convertible notes is that they are known to be complex and therefore, finicky or glitchy. However, as TechCrunch points out, this type of debt automatically converts into shares of preferred stock upon the closing of a Series A round of financing. FundersClub explains convertible notes as an investment vehicle that is structured similarly to a loan. Every entrepreneur should understand his or her options and make sure that they align with their long-term strategic fundraising plans.Ī convertible note is a type of debt that has the right to convert into equity when you hit an agreed upon milestone. ![]() Typically they prefer low interest which is where SAFE comes in as a favorable alternative to convertible notes, but there’s much more to the picture. When it comes to seed investment, founders have options. ![]()
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