Should I use a convertible note or a SAFE?
Takeaway: While both are viable, the SAFE has become the dominant instrument for seed-stage fundraising due to its founder-friendly simplicity and the critical advantage of having no maturity date, which eliminates the risk of a "ticking time bomb" on your cap table.
For an early-stage founder, the choice between a convertible note and a SAFE is one of the first major fundraising decisions you will make. Both are designed to achieve the same goal—a fast, efficient seed round that defers the valuation question. While the convertible note was the historical standard, in the modern startup ecosystem, the SAFE (Simple Agreement for Future Equity) has become the clear winner and the preferred instrument for most sophisticated founders, investors, and law firms.
The primary reason for the SAFE's dominance is its elegant solution to the biggest problem inherent in the convertible note: the maturity date.
The Problem with the Maturity Date
A convertible note is a debt instrument. Like all debt, it has a maturity date (typically 18-24 months) at which point the loan must be repaid if it has not already converted into equity. This creates a "ticking time bomb" for the startup.
The Crisis Scenario: If your company struggles to find product-market fit or if the fundraising market turns cold, you can find yourself approaching your maturity date without having raised a priced round. At this point, your noteholders legally have the right to demand their money back, plus interest. This can force an otherwise viable company into insolvency.
The Re-Negotiation Hassle: More commonly, it forces the founders to go back to their noteholders, hat in hand, to ask for an extension of the maturity date, often in exchange for more favorable terms for the investors.
The SAFE Solution: No Maturity, No Interest
The SAFE, which was invented by Y Combinator specifically to solve this problem, is not a debt instrument. It is more akin to a warrant—a contractual right to future equity. This simple structural difference has profound, founder-friendly implications:
No Maturity Date: A SAFE has no maturity date. It simply remains outstanding until a priced financing occurs, whenever that might be. It removes the ticking time bomb and gives the company the flexibility it needs to build the business at the right pace.
No Interest Rate: Because it is not debt, a SAFE does not accrue interest. This simplifies the cap table math and is slightly less dilutive for the founders.
When Might a Convertible Note Still Be Used?
While the SAFE is now the standard, some investors, particularly more traditional angel investors who may be less familiar with the Silicon Valley norms, are still more comfortable with the structure of a convertible note because it feels more like a traditional loan. In some cases, a founder may choose to use convertible notes to accommodate a specific, valuable investor who insists on that structure.
However, for the vast majority of seed-stage tech startups, the strategic choice is clear. The SAFE provides all the benefits of a convertible instrument without the single greatest risk. It is a simpler, cleaner, and more founder-friendly way to raise your first round of capital.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.