Key takeaways
- SAFEs and notes delay setting a valuation; priced rounds set it now.
- Caps and discounts decide how much equity early investors get later.
- Model dilution from all SAFEs and notes together before you sign more.
The short version
- SAFE: investor pays now, gets shares at the next priced round. No interest, no maturity date.
- Convertible note: a loan that converts into shares at the next round. It has interest and a maturity date.
- Priced round: investors buy shares today at an agreed valuation, with full legal documents.
How conversion works
SAFEs and notes usually have a valuation cap, a discount (often 10–25%), or both. When a priced round happens, the investor converts at whichever gives them more shares: the cap price or the discounted round price.
Pros and cons for founders
- SAFEs are fast and cheap to close, and you can raise from investors one by one.
- Notes are familiar to many investors but the maturity date can create pressure if the next round is late.
- Priced rounds take longer and cost more in legal fees, but give everyone clarity on ownership and governance.
- Stacking many SAFEs at different caps can cause more dilution than founders expect.
Country differences
SAFEs were designed for US companies. In India, investors commonly use instruments such as compulsorily convertible preference shares (CCPS) or convertible notes that meet local company and foreign-exchange rules. Always get advice from a lawyer who knows your jurisdiction.
Before you sign
Build a simple cap table showing what each SAFE or note converts into at your likely next valuation. Read term sheet basics and look up any terms in our startup glossary.
This guide is general information, not legal, tax or financial advice. Rules and programme terms change, so check official sources and speak to a qualified adviser before making decisions.