SAFE notes and convertible notes are the two most common instruments early-stage startups use to raise money before a priced equity round — both let investors put in money now and convert it to equity later, but the mechanics differ in ways that matter to founders.
A convertible note is debt; a SAFE isn't
A convertible note is technically a loan, with an interest rate and maturity date, that converts to equity later. A SAFE (Simple Agreement for Future Equity) isn't debt at all — it has no interest rate or maturity date, which simplifies the cap table but changes what happens if the company doesn't raise a future round.
Valuation caps and discount rates
Both instruments typically include a valuation cap (a ceiling on the price at which the investment converts) and sometimes a discount rate — these terms directly determine how much equity early investors end up with, and stacking multiple notes with different terms can create real complexity later.
What happens if there's never a future priced round
Because a convertible note is debt with a maturity date, it can technically come due and require repayment if no qualifying round happens in time — a scenario founders need to understand and plan for, which a SAFE's lack of maturity date avoids.
Why the cap table gets complicated fast
Multiple SAFEs or notes issued at different times, with different caps and discounts, all convert simultaneously at the next priced round — modeling out exactly how much dilution founders will face requires the notes to be drafted and tracked carefully from the start, not reconstructed later.