guideLegal & Formation
SAFE Note vs Convertible Note Explainer
Understand the key differences between SAFEs and Convertible Notes — how they work, what the terms mean (valuation cap, discount rate, MFN), and which is more founder-friendly at the pre-seed stage.
SAFE vs Convertible Note
A SAFE (Simple Agreement for Future Equity) is not a loan — it has no interest rate or maturity date. A Convertible Note is a loan that converts to equity. SAFEs are simpler and more founder-friendly.
How a SAFE Works
An investor gives you money now. The SAFE converts to equity at your next priced round, typically at a discount to new investors and/or subject to a valuation cap.
Key SAFE Terms
Valuation Cap: The maximum valuation at which the SAFE converts (protects the early investor). Discount Rate: Percentage discount to the price paid by Series A investors (typically 10–20%).
Post-Money vs Pre-Money SAFEs
YC introduced the post-money SAFE in 2018. Investors know exactly what % they own at signing. This is now standard. Make sure you understand the dilution impact before stacking multiple SAFEs.