If you’re making an early-stage investment in a startup, you’re probably going to be asked to sign either a SAFE or a convertible note.

They’re both short documents. They both delay valuation until a later round. And they’re both designed to convert into equity in the future.

So what’s the difference?
And which one offers more protection for investors?

Here’s what you need to know.

First, What They Have in Common

Both SAFEs (Simple Agreements for Future Equity) and convertible notes are ways to invest in a startup before it’s ready to price an equity round. Instead of buying shares today, you’re giving money now in exchange for a promise of future equity—usually at a discount or with other favorable terms.

These instruments are popular because they’re fast, founder-friendly, and cheaper to execute than a full priced round.

But how they work—and how they protect investors—differs in a few key ways.

Convertible Notes: Debt with a Fuse

Convertible notes are structured as debt. You lend money to the company, and that loan converts into equity when the company raises its next round.

Because they’re debt instruments, convertible notes include a maturity date—meaning that if the company doesn’t raise money by a certain time, you may have the right to ask for repayment. In theory, that gives investors leverage. In practice, few investors demand repayment unless things have gone seriously sideways.

Still, the debt structure adds formality. Convertible notes may also carry interest, which accrues until conversion. And they typically convert at a discount to the next round’s price, with an optional valuation cap.

SAFEs: Simpler, Riskier, Founder-Favored

SAFEs were introduced by Y Combinator as a simpler, founder-friendlier alternative to convertible notes. Unlike notes, SAFEs aren’t debt. They have no maturity date, no interest, and no promise of repayment. They’re purely agreements to convert into equity—whenever the next qualified financing round occurs.

The simplicity cuts both ways. For founders, SAFEs are attractive because they avoid debt and don’t require immediate valuation. For investors, the lack of a maturity date or default mechanism means less protection if things go wrong.

SAFEs typically include a valuation cap and sometimes a discount, but they don’t carry the fallback of calling the note due. You’re along for the ride—and if the company never raises again, the SAFE may never convert.

Which One Protects Investors More?

It depends on what kind of “protection” you mean.

If you want legal leverage—the ability to demand repayment, force conversion, or accrue interest—a convertible note gives you more tools. It’s structured as a loan with legal teeth, even if they’re rarely used.

If you’re focused on simplicity and long-term upside, and you trust the founders and the fundraising plan, a SAFE may be acceptable—but you need to go in knowing you’re taking more risk in exchange for more convenience.

There’s also the question of market dynamics. Some founders will only offer SAFEs. Some investors will only invest using notes. You won’t always get to choose—but you should know what you’re agreeing to.

A Real-World Consideration

Suppose a friend’s company is raising a pre-seed round and offers you a SAFE with a $5 million cap. They’ve never raised before, and they’re not sure when they’ll raise again.

You could ask for a convertible note instead. That gives you the cap, plus interest, plus a maturity date. But it also adds paperwork and may feel more formal—potentially complicating the relationship.

Your choice depends on how much protection you want, how confident you are in the company’s trajectory, and how willing you are to walk away if the terms don’t align with your goals.

Bottom Line

SAFEs are simpler. Notes are stronger. Both can work. But they aren’t interchangeable.

If you’re investing your own money in a startup—especially someone you know personally—take the time to understand the difference. A lawyer can help explain the terms, flag red flags, and make sure you’re not signing something you don’t fully understand.

It doesn’t take long. But it could make all the difference if things go well—or if they don’t.

Thinking about investing through a SAFE or note?
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