The one difference that matters, the date that decides it and the terms you negotiate either way.

Founders tend to treat a SAFE and a convertible note as two names for the same thing. They aren’t, and the gap only shows up when things go slower than planned.

We asked Stephen Pessenbacher, a corporate and commercial attorney at Dommisse Attorneys who advises founders on raises and cap tables, how to choose between them…

Both instruments do the same core job: take money now and set the price later, at your next proper round, because right now any valuation is guesswork. What separates them is what happens if that round is late or never arrives. Stephen puts the whole distinction in one line.

“With a convertible note you’re issuing debt, whereas with a SAFE you’re issuing a right.”

A convertible note is a loan the company takes that converts into shares on a trigger, usually a funding round, or after a set period. Until it converts, it sits on your books as debt, which means it has a maturity date and it accrues interest. A SAFE, a simple agreement for future equity, gives the investor a right to shares later. There is no debt, no interest and no deadline; it simply stays outstanding until a priced round or an exit converts it.

This is the term founders underweight. A note typically matures after 18 to 24 months and accrues interest in the meantime, commonly somewhere around 4% to 8% a year. If no qualifying round has happened by then, you’re negotiating one of three outcomes: extend the date, convert at the cap, or repay the principal plus interest in cash. For an early company that can’t repay, that clock is a genuine insolvency risk, and the leverage sits with the investor. A SAFE has no clock at all, which shifts that downside back to the investor.

Whichever you choose, the economics come down to two terms. The valuation cap is an agreed ceiling on the valuation the investment converts at, since nobody knows the real number yet. The discount rewards early risk with a lower per-share price when it converts: a 20% discount, for example, means paying 80 cents where new investors pay a rand. Stephen’s advice is to negotiate so your interest is protected down the line, while accepting that an early investor reasonably wants protection too if the cap is never reached.

His rule of thumb is that the less you know about your true value, the more sense it makes to defer the pricing. At pre-seed and early seed, that points to a SAFE, which is faster and cheaper to close and carries no repayment pressure. It’s also where the market has moved: in US data from Carta, SAFEs account for the large majority of pre-seed rounds. Notes still show up, mostly where an investor specifically wants the protections of debt or interest as part of their return.

Deferral has a shelf life. The more you deal with institutional investors, the more they insist on a fixed price, because they need it to model their own return, which is why priced equity is standard from Series A onwards. When you reach that point, Stephen’s advice is to get a professional valuation from an accountant or specialist, particularly for software, where much of the value sits in intangible IP that’s subjective and hard to pin down.

Choose deliberately, and you avoid the worst version of an early raise: a debt deadline arriving before your next round, with an investor holding the leverage. For most founders raising their first money, that means a SAFE; for the ones taking a note, it means a maturity date long enough to survive a round that runs late.

This is one piece of How Much Equity Should You Give Away and When?, Stephen’s full masterclass inside the Founder Collab, which answers the question every founder asks and few can pin down:

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