SAFE vs Convertible Note: Which Should Your Startup Use?
SAFEs and convertible notes both let you raise before a priced round. Here is the difference, the terms that actually matter, and what Indian founders use instead.
Before a priced round, most early-stage startups raise on a SAFE or a convertible note — instruments that let an investor put money in now and settle the equity later, when you have a valuation. They look similar but behave differently, and the difference can cost you real ownership.
What is a SAFE?
A SAFE — Simple Agreement for Future Equity — is not debt. There is no interest, no maturity date, and nothing to repay. The investor's money converts into shares at your next priced round, usually with a valuation cap or a discount in their favour.
What is a convertible note?
A convertible note is debt. It accrues interest and has a maturity date, by which it either converts to equity or must be repaid. Like a SAFE, it typically converts at the next round with a cap and/or discount — but the interest quietly increases the number of shares the investor gets.
The two terms that decide your dilution
- •Valuation cap — the maximum valuation at which the money converts. A low cap means the investor gets more equity. This is the single most important number to negotiate.
- •Discount — a percentage (often 10–20%) the early investor pays below the next round's price, rewarding them for early risk.
What Indian founders actually use
The standard US SAFE is not always enforceable under Indian law. So Indian founders commonly use an iSAFE (an India-adapted version), or convertible instruments like CCPS and CCDs that fit the Companies Act and RBI framework. If you are incorporated in India, talk to a lawyer before signing a vanilla US SAFE.
Whichever instrument you use, model how it converts before you sign — our dilution calculator and our guide to equity dilution show you exactly how much ownership a cap costs you.
Frequently asked
What is the difference between a SAFE and a convertible note?
A SAFE is not debt — it has no interest and no maturity date, and converts to equity at your next priced round. A convertible note is debt: it carries interest and a maturity date, and also converts to equity later.
Do Indian startups use SAFEs?
The standard US SAFE is not always enforceable under Indian law, so Indian founders often use an India-adapted iSAFE, or instruments like CCPS (compulsorily convertible preference shares) and CCDs that fit the Companies Act and RBI rules.