safe vs convertible notejoe's original dartmouth menu

SAFE come with their own share of baggage now. A SAFE is simpler — because it is a widely known form… even if it is modified for a particular investment. Convertible notes are very similar to SAFE notes, however, they differ in that they:, where the debt must be converted into equity or repaid regardless of the current value of the company.Are much longer than a SAFE note and are therefore more likely to be misunderstood by one or both parties.Have an interest rate attached so that the startup must pay this amount to the investor on top of converting the debt into equity at a later date.SAFE notes have a number of advantages over convertible notes, including:1) They could be considered a warrant rather than debt.2) There are fewer attached stipulations, keeping the agreement clear, concise, and easy to understand.3) Lower complexity, meaning they don’t take long to process.
That’s basically a full ratchet (that’s bad, if you don’t understand).
This is nice for simplicity, but it doesn’t give control to you.Another thing to consider is that raising common stock doesn’t trigger a conversion for a SAFE investor, so entrepreneurs in need of some extra cash could do a “friends and family round” and avoid the conversion trigger if there is a need to bridge.I said above that SAFE are better as they are simpler. However, legal representation really should always be used.4) Shorter documentation, taking less time to be read by investors and founders.

However, it’s pretty hard to negotiate for!If you have a low cap, then you can get diluted more than you probably thought you would be under a convertible note and the old SAFE. Seed funding is now a phase, not a funding event. So in the example above, if the pre-money cap was $5,000,000, you would still get a discount of 20% up to that amount. A convertible note is a form of short-term debt that converts into equity, typically in conjunction with a future financing round; in effect, the investor would be loaning money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company.. Dude, come on?Both SAFE and convertible notes allow for conversion into equity.

This doesn’t make sense. You will be asked what content is sent to you depending on your exact needs.Enterprise, consumer and SME SaaS financial fundraising modelEcommerce business plan fundraising financial model for physical inventoryEnterprise, consumer and SME SaaS financial fundraising modelEcommerce business plan fundraising financial model for physical inventory But, for convertible notes to be a debt instrument (and therefore rank higher that SAFEs in a dissolution, meaning shut-down) they need to have an interest rate.There is no interest accumulation on the SAFE as there is no interest rate.Convertible notes do accumulate. I’m being a little sarcastic here.Unless you explicitly add in a clause into your Convertible Note, the investors may get a SAFE doesn’t have this issue as it is built in. The latter is true in the case of SAFEs.

It is a convertible security with a creative acronym.”There are many similarities between SAFE and convertible notes investments.Yup, things are going to get a little complicated for those who haven’t been paying attention. You need to know how to write things properly.Here is an example.

In a priced round, anti-dilution would only trigger if the valuation is lower than the price. The valuation caps are the only negotiable detail.

In the event that your company is liquidated, the investor who holds the note is not given priority for payment like some other creditors.SAFE notes are relatively new, and so some changes have been made to them since their initial use just a few years ago. if the safe converts in the Series A, the pro rata right applies to the Series A).There are four versions of the new post-money safe, plus an optional side letter. Especially if there is no valuation cap in place. Meaning if your company fails, then the investors get money back pretty much last, after convertible notes (if any were issued).In the words of Carolynn Levy, the YC partner and former Wilson Sonsini lawyer who created the SAFE“[t]he Safe is just a convertible note with the ‘event of default,’ interest, and maturity date provisions stripped out.

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