Determining a startup’s exact valuation during early stages (Pre-seed and Seed) is notoriously difficult. To avoid spending months negotiating valuation, founders and investors use convertible investment instruments. The most widely adopted standards are SAFE agreements and convertible notes.
To learn more about valuation caps and discounts, read our article: Investment stages: Pre-seed, Seed, Series A, B, C
1. Comparing SAFE agreements and convertible notes
| Feature | SAFE (Simple Agreement for Future Equity) | Convertible note |
| Instrument type | Agreement for future equity | Debt instrument |
| Interest rate | None (0%) | Accrues annual interest (e.g., 5–8%) |
| Maturity date | None (Indefinite) | Fixed maturity period (18–24 months) |
| Created by | Y Combinator (2013) | Traditional venture law practice |
| Document complexity | Simple (5–6 pages) | Complex legal contract |
Y Combinator open-sourced its Post-Money SAFE templates for global use. Today, over 80% of early-stage seed rounds globally are executed using SAFE agreements. Using a SAFE agreement is the most efficient way for early-stage startups to save time and legal expenses during fundraising.
