October 13, 2026
For almost every pre-seed round, use a post-money SAFE. It’s shorter than a convertible note, has no interest or maturity date, and fixes each investor’s ownership up front. A convertible note makes sense only in a few situations, such as an LLC issuer or an investor who insists on debt, and a priced round makes sense once you’re raising enough that the extra legal cost is worth it or a lead investor requires one.
Key takeaways
A SAFE (Simple Agreement for Future Equity) is a contract in which the investor pays the company now and receives shares later, usually when the company raises a priced round. It isn’t debt. There’s no interest, no maturity date, and no repayment obligation in the ordinary course. Most SAFEs today are the post-money form, which has a valuation cap and sometimes a discount. See SAFE.
A SAFE doesn’t disappear if it never converts. If the company is sold first, the investor receives the greater of the purchase amount or what the SAFE would have converted into at the cap. If the company dissolves, the investor gets the purchase amount back ahead of the common stockholders, to the extent money is left after creditors are paid.
A convertible note is a loan that converts into stock when the company raises a priced round. Like a SAFE, it usually has a valuation cap and often a discount. Unlike a SAFE, it has a maturity date, often 18 to 24 months out, and it accrues interest, which typically converts along with the principal. If the note hasn’t converted by the maturity date, the investor can technically demand repayment. In practice, investors usually agree to extend or convert, but the maturity date gives them leverage at exactly the moment the company may be short on cash. See Convertible Notes.
| Post-money SAFE | Convertible note | Priced round | |
|---|---|---|---|
| What the investor gets now | A contract right to future shares | A loan that converts to shares | Preferred stock |
| Maturity date | None | Yes, often 18 to 24 months | Not applicable |
| Interest | None | Yes, and it usually converts | Not applicable |
| How ownership is set | Fixed at signing: purchase amount divided by the post-money cap | Set at conversion, usually on a pre-money basis, plus accrued interest | Set at closing by the agreed valuation |
| Paperwork | One short agreement per investor | One agreement per investor, longer than a SAFE | A charter amendment and a set of financing documents |
| Relative legal cost | Lowest | Low | Highest |
| Best for | Most pre-seed and many seed rounds | LLC issuers, debt-minded investors, short bridges | Larger rounds or when a lead investor requires it |
On a post-money SAFE, the investor’s percentage is locked in when they sign. A $500,000 SAFE on a $5,000,000 post-money cap buys 10% of the company as it stands just before the priced round, counting all the SAFEs and the option pool. If you later sell more SAFEs, those dilute the founders, not the earlier SAFE holders. That makes the math easy for investors and makes stacking SAFEs expensive for founders. See Valuation Cap.
A note’s cap is usually a pre-money number, so the investor’s final percentage depends on how much else converts at the same time. The accrued interest converts too, so a note holder ends up with somewhat more shares than a SAFE holder who invested the same amount at the same cap.
A note can be the right tool when:
Outside those cases, the SAFE is simpler, cheaper to paper and easier to explain to the next investor.
Not the standard one. The standard SAFE converts into preferred stock and assumes corporate terms throughout. An LLC that needs money quickly has two practical choices: issue convertible notes (or an instrument drafted specifically for an LLC), or convert to a Delaware C corporation first and then issue standard SAFEs. If you’re on a venture track, converting first is usually cleaner, because your investors will want you to be a C corp anyway. See C Corp vs LLC.
Almost always. For a round of that size, a post-money SAFE with a valuation cap is the market default. A priced round under $2 million usually costs more in legal fees and time than it’s worth, unless a lead investor insists on one. The fastest and cheapest path is the standard post-money SAFE, unmodified, approved by a board consent. Investors know it, so there’s little to negotiate beyond the cap.
You can, but you shouldn’t. Two instruments with different caps and conversion mechanics make the next priced round harder to model, can trigger most-favored-nation provisions you didn’t expect, and give the next investor more to question. Pick one instrument for the round and handle investor-specific requests, like pro rata rights or information rights, in short side letters.
When the round is big enough, or the lead investor wants board seats, protective provisions and a defined valuation. A priced round sets the price per share and issues preferred stock immediately, and any outstanding SAFEs and notes convert at the same time. Most seed-stage priced rounds use the Series Seed documents. Larger rounds use the NVCA model documents. See Series Seed vs NVCA Documents.
Go deeper: For a full walkthrough, see our Founder Guide to SAFEs and Founder Guide to Convertible Notes.
If you’d like help choosing an instrument or papering the round, see our SAFE, Convertible Note and Series Seed services, or contact us.
