SAFE vs convertible note — which should I use for pre-seed?

Raising $300K from angels. Some want SAFEs, one wants a convertible note. What's the actual difference and which is better for me as the founder?

Key differences:

SAFE: Not debt. No interest. No maturity date. Converts at next priced round. Standard YC docs, free to use. Simpler.

Convertible Note: Debt. Accrues interest (typically 4-8%). Has maturity date (18-24 months). If no priced round by maturity, investor can demand repayment or conversion.

Founder-friendly: SAFEs are generally better — no ticking clock, no interest dilution, simpler cap table until conversion.

Investor-friendly: Notes give more protection — maturity date creates urgency, interest compensates for risk.

I invest via both. My preference for notes isn't about being "investor-friendly" — it's about tax treatment. Convertible notes are clearer as debt for tax purposes. SAFEs have some tax ambiguity that sophisticated investors' accountants worry about.

If the investor insisting on a note is writing a big check, just do a note for them. You can do SAFEs for the rest. They don't have to all be the same instrument.

Watch out for: stacking too many SAFEs at different caps. If you do $100K at $5M cap, then $200K at $8M cap, then $300K at $10M cap... when you do a priced round, the dilution math gets complicated.

Use a cap table tool like Carta, Pulley, or AngelList Stack to model the conversion. Know what your dilution will be BEFORE you sign.

Resurrecting this thread because I just went through this exact situation. Closed a $400K pre-seed in November — mixed SAFEs and one note.

The investor who wanted the note was putting in $150K (our largest check). His lawyer insisted on the note for QSBS eligibility clarity. We negotiated 5% interest, 24-month maturity, same $6M cap as the SAFEs. Honestly wasn't that painful.

The one thing I'd warn about: make sure your note and SAFE caps are identical. We almost had a situation where the note investor wanted a lower cap "because notes have interest" — don't let that argument fly. The interest IS the compensation for the note structure.

Update from OP: We closed! Ended up doing SAFEs for everyone except that one angel who wanted a note. Total raised $320K.

For anyone reading this later — here's what actually mattered: (1) all the same cap, (2) post-money SAFEs so we know exact dilution, (3) got MFN clause removed from the SAFEs because we were closing everyone at once.

Thanks everyone for the advice. This forum was more helpful than the 3 lawyers I talked to who all gave conflicting guidance.

Congrats on the close! One note for future readers: the "post-money" SAFE distinction is crucial. YC updated to post-money SAFEs in 2018 but some angels still use old pre-money versions floating around online.

Post-money = you know exactly what % the SAFE holders will own at conversion. Pre-money = their % depends on how much you raise in the priced round. Always use post-money for clarity.

Late to the party but wanted to add the VC perspective. When we lead seed rounds, we often see 4-6 SAFEs already on the cap table. The conversion math isn't hard, but what gets messy is when founders have done SAFEs with side letters or non-standard terms.

Biggest red flags we see: (1) SAFEs with pro-rata rights at pre-seed (creates friction at seed), (2) different caps for similar timing (makes investors question your negotiating), (3) uncapped SAFEs from 2021-era (brutal dilution for founders at conversion).

Clean SAFEs at reasonable caps = easy Series Seed. Messy convertible stack = we spend 2 extra weeks on legal and everyone's frustrated.