Convertible Note vs Post-Money SAFE (Simple Agreement for Future Equity) - Which is Best?

Sometimes a Convertible Note is the right answer, but overall the SAFE is more favorable to the entrepreneur than the Convertible Note.
The two have much in common: both are convertible securities, both can have (but don't have to have) a discount and/or a valuation cap. Both present challenges in terms of understanding the resulting founder dilution, since that can vary greatly depending on the pre-money value of the later funding round that converts the note or SAFE to stock. Advantages of the SAFE include no maturity date, no interest, and it is not debt on the balance sheet. On the other hand, some investors prefer the Convertible Note and for those investors, it may be easier to close the round if you use a convertible note.

[@ay3723]

Hey brother, just wanted to let you know that I really appreciate your time and effort you spend to teach us aspiring entrepreneurs thank you for sharing your knowledge 🚀

[@Startupsos]

My pleasure!

[@mpawli10]

You do a really good explaining these concepts, thank you, well done

[@salma1017]

very informative and easy to follow, thank you very much 😊

[@clintl326]

I, on the other-hand, saw nothing wrong with your back drop :-) Great job, Steve. In a future video, can you address these questions: 1) If you’ve raised with a post-money SAFE (an accelerator round) can you use a pre-money SAFE in a future round (I.e., a Pre-Seed round), and (2) Whats the easiest way to understand or model the impact on dilution of multiple SAFEs in multiple rounds? Thank you!

[@Startupsos]

Thanks! Some brief responses to your questions: There is no reason you can't do a post-money SAFE followed by a pre-money SAFE as long as you can get investors to agree to that. You could even follow up with a SAFE that has no valuation cap at all. However, investors may well prefer the post-money SAFE arrangement (since they know what percent they'll get), so if there is an issue, it will likely be objections from investors! Regarding the impact of multiple SAFEs, check out the video on "Share dilution calculator for multiple pre-money SAFEs, post-money SAFES and convertible notes". The associated spreadsheet is the only download on the channel at this point in time that has a price tag - but it's only $10.

[@matthewb.johnson8154]

Is there an online resource that provides convertible note or safe note legal documents?

[@michaelwoodrum623]

Do you know which agencies have issues with debt on the balance sheet for SBIR grants? Did some googling and could not find any info. Great content by the way - gone through several of your videos and have to say the best/clearest explanations.

[@Startupsos]

The one that I'm aware of is NSF (National Science Foundation)

[@michaelwoodrum623]

@@Startupsos Thank you!