Safe Agreement Vs Convertible Note

They removed the pro-rata rights as standard, which was a standard in the original chest. This, in proportion to the former SAFE, applied to funding after the round in which the original safe was converted (for example.B. if the original safe was converted to Series A, the pro-rata law of Series B applies). Convertible bonds are bonds, while DEEE notes are warrants. The technology start-up sector also uses two types of alternative investments, one called a “conversion note” and a “SAFE note.” Like the safe note, convertible bonds are also used to promise investors that they will receive additional shares in the future. However, convertible bonds are more of a form of short-term debt, with the investor lending money to the company, including interest, with an option on equity in the next financing cycle. The loan has a fixed term and an interest rate over time. The interest rate is negotiable, depending on the amount investors want to invest and the amount you want to invest (there is usually a current market rate that will vary, so check with other founders who have recently increased on a convertible loan). Safs and convertible bonds turn into equity in a future series of shares; A convertible note can be more complex when/if/how it is converted. Safs and convertible bonds can have valuation caps, discounts and the most advantaged countries. A convertible bond (“Con Note” if you`re cool) is easier than a price exchange, especially because it delays the need to agree before investing on a pre-money valuation of the company.

Instead of the startup that offers shares to investors, it offers a convertible loan, which is a loan to the company. We know there is a lot of overlap between the convertible and SAFE notes, so we`ll summarize them here. Later, we`ll discuss what sets them apart so you can decide which one can work best in your business. With a safe with no due date, you can continue to raise SAFE notes with the founder and delay conversion indefinitely. This creates a lot of uncertainty for investors (less with the post-note), but that`s not your problem. I`m a little sarcastic. I have mentioned it before, but to emphasize it. Convertible bonds are like debt.

FAS is like warrants. When it comes to investing in seeds, the founders have options. In general, they prefer low interest rates, where SAFE is an advantageous alternative to convertible bonds, but there is much more on the picture. Each entrepreneur should understand their options and ensure that they are inspired by their long-term strategic fundraising plans. I say, don`t make SAFE notes…. It`s ironic. If you have a low cap, then you can be diluted more than you probably thought, you would be under a change note and the old SAFE. Andrew Krowne of Dolby Family Ventures wrote in TechCrunch: In general, SAFE ratings mean less risk to the founder and more risk to the investor.