Both let you raise money before you have a valuation. Both convert to equity later. They look interchangeable from the outside. They are not. The instrument you sign determines what your investor can do to you if the next round takes longer than expected, and how much of the company you own when it finally happens.
Reading time: 8 minutes. No legal jargon. The four questions at the bottom are the decision framework — if you remember nothing else from this page, remember those.
A SAFE (Simple Agreement for Future Equity) is a contract that says: "I'll send you shares when we raise a priced round, calculated according to these rules." It is not debt. It accrues no interest. It has no maturity date. If you never raise a priced round, the SAFE just sits there indefinitely. Y Combinator standardised the format in 2013; the post-money variant arrived in 2018 and is now the default.
A convertible note is a loan that converts to equity instead of being repaid in cash. It accrues interest (typically 5-8% per year). It has a maturity date (typically 18-24 months). If you don't raise a priced round before maturity, the noteholder has options — and most of them are uncomfortable for you.
The conversion mechanics are similar enough that founders treat them as interchangeable. The legal status is not similar at all. A SAFE is equity waiting to happen. A convertible note is debt with an exit door.
SAFEs accrue zero. Convertible notes accrue 5-8% annually, compounded into the conversion amount. On a $500k note at 6% with 24 months to conversion, the noteholder converts $562k worth of equity for their original $500k. That extra $62k comes out of your cap table, not theirs.
SAFEs have none. Convertible notes typically mature in 18-24 months. If you haven't raised a priced round by then, the noteholder can: (a) extend the note (most common, depends on relationship), (b) demand cash repayment (legal right, rare in practice but possible if relationship sours), or (c) force conversion at the cap to equity even without a priced round (called a "discounted conversion" — terms vary). Maturity is the loaded gun. SAFEs don't have one.
If the company shuts down before the next round, convertible noteholders are creditors — they get paid before any equity holder, including the founders. SAFE holders are equity-tier — they sit at the bottom of the stack with you. For a healthy startup this never matters. For a startup that fails before raising again, it matters a lot. The convertible note creditor gets their money back before you get a euro of severance.
YC's SAFE template is five pages and lawyers don't typically rewrite it (everyone knows it, the negotiations happen on the cap and discount). Convertible notes are 15-25 pages, often customised, and trigger more lawyer time on both sides. SAFE: maybe €500-1,500 in legal fees per round. Convertible note: €2,000-5,000+. For a pre-seed founder, that's two months of runway.
You raise $500,000 at a $5M post-money cap in two scenarios. Eighteen months later you raise a Series A at $25M post-money. The cap kicks in for both instruments.
SAFE scenario: $500k ÷ $5M = 10.0% of the post-money cap table. At Series A per-share price, that 10% is worth $2.5M of equity. The investor 5×'d on paper.
Convertible note scenario (6% interest, 18 months elapsed): the conversion amount is $500k × (1 + 0.06 × 1.5) = $545k. The holder converts as if they invested $545k at the $5M cap, getting 10.9% of the cap table. At the Series A price, that 10.9% is worth $2.725M. Same effective 5×, but they got 0.9% more of your company than the SAFE investor for the exact same dollar amount in.
Difference for you: 0.9% of the cap table, before any other notes, SAFEs, or option pool refresh. On a single check, marginal. Stack three convertible notes at $500k each over 18 months — that's ~2.7% of your company you keep with SAFEs and lose with notes, just to interest. Same investors, same cash, same caps.
And this assumes you raise the Series A on time. If you slip past the maturity date, the convertible note math gets worse. The SAFE math doesn't change.
American angels and seed VCs are SAFE-fluent. They've signed hundreds. Default to SAFE. European angels — especially from family office, banking, or traditional finance backgrounds — are more comfortable with convertible notes because they look like the debt instruments they already understand. Don't fight this if it's a deal-breaker; the friction of educating them costs more than the ~1% interest delta.
If high confidence (you've talked to seed VCs, your traction is on the curve, you have a target raise): convertible note maturity is irrelevant, take whichever the investor prefers. If low confidence (early product, untested market): SAFE removes the maturity timebomb. Don't sign a convertible note if you're not sure you'll have a Series A teed up by month 18 — you'll spend month 17 negotiating extensions instead of building.
One $500k check at 6% interest costs you ~0.9% of the cap table at conversion. Five $200k checks at 6% over 18-24 months stacks to ~3-4% at conversion plus multiple maturity dates to manage. Convertible notes get expensive fast when you raise from many small investors. SAFEs scale better for party rounds.
A $500k round on YC's standard SAFE: ~€800 in legal fees. Same round on a custom convertible note: €3,000-5,000. For a pre-seed founder with €30k in the bank, that's the difference between landing the round and shipping product, or landing the round and immediately needing more money. Default to standard SAFE unless the investor's check-size justifies the legal overhead.
The default for a pre-seed European founder raising under $2M: YC post-money SAFE, every time, unless the investor refuses. If they refuse, you have a data point about how they negotiate — and that data point matters more than the instrument.
Drop a SAFE or a convertible note in. Prism extracts: instrument type, cap, discount, MFN clause, interest rate (if note), maturity date (if note), and any non-standard modifications to the YC template. Then it compares against your playbook — your rules for which instruments you'll accept at which stage, your maximum interest rate, your minimum cap floor, and your acceptable maturity range.
The output: categorised findings (low / medium / high), market context (how this instrument's terms compare to similar-stage rounds in your sector), and ready-to-send redlines. If the document is a convertible note when your playbook says "SAFE only under $2M raise," that's a finding before you read past the title page. If the maturity is 12 months when you typically raise in 24, that's a finding too.
Not generic advice — the same advice applies to every founder, which is why generic advice is worth what you pay for it. Your rules, applied to this specific document, with the math and market context that turn an instrument decision from a vibe into a defensible position.
Closed alpha. Premium tier — €49/month, no free tier, no demos. Read the home page if you haven't, then drop your email.
Valuation cap, in plain English — the single number that decides how much of the company you keep when the SAFE converts.
Priced round vs SAFE — when to stop using instruments and just price the round.
How a SAFE converts — the exact mechanics that turn your SAFE into shares at the next round.
If there's a term you're trying to understand right now and it's not on this list, tell us — the order we write these in is driven by what founders ask for.
