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SAFE vs convertible note: which should you use?
SAFE vs convertible note in one page: how each converts, valuation caps and discounts, interest and maturity, a worked conversion example, and when to use which.
Short answer: both let investors fund you now and get shares later, at your next priced round. A SAFE is not debt: no interest, no maturity date, no repayment. A convertible note is debt: it earns interest and has a deadline. Most early rounds now use SAFEs.
SAFE vs convertible note at a glance
| SAFE | Convertible note | |
|---|---|---|
| Legally | Contract for future equity | Loan that converts to equity |
| Interest | None | Typically 4% to 8% a year, added to what converts |
| Maturity date | None | Typically 18 to 24 months |
| If no priced round happens | Stays outstanding | Investors can ask for repayment or renegotiate |
| Valuation cap | Almost always | Usually |
| Discount | Sometimes | Usually 15% to 25%, 20% most common |
| Paperwork | Short standard form (Y Combinator) | Longer, more negotiated |
| Share of pre-seed rounds | 93% | 7% |
Usage figures are from Carta for Q2 2026. Note terms are common market ranges, not fixed rules.
How conversion works
At your next priced round, the investor's money turns into shares at the better of two prices:
- The cap price: the valuation cap divided by the company's shares.
- The discount price: the round's price per share minus the discount.
Worked example
An investor puts in $1M on a post-money SAFE with a $10M cap.
- Series A at a $40M valuation: the cap applies, so the investor converts to 10% ($1M of $10M).
- Series A at a $5M valuation: the cap is moot, so the investor converts at the round price, about 20%.
A convertible note works the same way, except accrued interest converts too. $1M at 6% for 18 months converts as about $1.09M.
Post-money vs pre-money SAFEs
- Post-money SAFEs fix the investor's ownership at signing, so you can see exactly how much of the company each SAFE takes. 91% of SAFEs on Carta in Q2 2026 were post-money.
- They stack against founders. Every new SAFE dilutes you, not earlier SAFE holders. Keep a running cap table before signing the next one.
Which should you use?
- Use a SAFE for most pre-seed and seed rounds: fast, cheap, and what investors expect.
- Use a convertible note when investors insist on debt protection, or local law and practice favour notes over SAFEs.
- Either way, negotiate the cap, not the paperwork. It sets most of the dilution.
Related guides
Sources
Questions
What is the difference between a SAFE and a convertible note?
Both convert into shares at the next priced round. A convertible note is debt with interest and a maturity date; a SAFE is not debt, has no interest and never needs repaying.
Is a SAFE better than a convertible note for founders?
Usually yes. A SAFE has no maturity date that can force repayment or renegotiation, no interest that adds to dilution, and simpler standard paperwork.
What is a valuation cap?
The maximum valuation at which a SAFE or note converts. A $1M investment on a $10M post-money cap guarantees the investor at least 10% when it converts, however high the next round is priced.
What is a post-money SAFE?
A SAFE whose cap includes all SAFE money raised, so each investor's ownership is fixed at signing. 91% of SAFEs on Carta in Q2 2026 were post-money.
What happens to a convertible note at maturity?
If no priced round has happened, investors can usually demand repayment, convert at an agreed price, or extend the maturity date. In practice most notes are extended or renegotiated.
How common are SAFEs?
Very. In Q2 2026, 93% of pre-seed rounds on Carta were SAFEs and convertible notes made up the rest.
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