Many startups use SAFE notes and Convertible Notes for their early-stage investments.

So what’s the difference?

A convertible note is a debt instrument that converts into equity later upon an event such as raising an equity round or reaching a maturity date.

A SAFE is a Simple Agreement for Future Equity which is a warrant to purchase stock in a future priced round.

The SAFE can convert when you raise any amount of equity investment and does not give the entrepreneur control of when to convert.

Convertible notes are considered to be legal debt, while SAFEs are warrants.

Neither a SAFE nor a Convertible Note set the valuation, but rather takes the valuation from the equity round.

Convertible Notes include an interest rate while SAFEs do not. 

Most convertible notes have a maturity date while SAFEs do not. 

Convertible notes contain a discount rate which provides additional shares to the investor for investing early. SAFEs have no discount rate.

SAFEs are often considered the simpler option compared to a convertible note, but as you can see the convertible note provides more options.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.