Convertible Debt vs SAFEs

Before the SAFE was invented in 2013, early stage startups raised on Convertible Notes (debt). While SAFEs are now dominant, convertible notes are still used, particularly for "bridge" rounds.

Convertible Notes

A convertible note is legally debt. It has:

• An Interest Rate: Usually 4-8% per year. This interest doesn't get paid in cash, it accrues and converts into more shares at the priced round.
• A Maturity Date: Usually 18-24 months. If the company hasn't raised a priced round by this date, the investors can legally demand repayment, pushing the company into bankruptcy, or force conversion at a predetermined valuation.
• Caps and Discounts: Just like a SAFE, to reward early risk.

Use our Convertible Note Calculator to calculate accrued interest and conversion shares.

The SAFE

The SAFE (Simple Agreement for Future Equity) is a warrant, not debt. It has no interest rate and no maturity date. It is vastly more founder-friendly because the startup cannot be forced into default.