A short-term loan that converts to equity at the next priced round, with an interest rate, a maturity date, a valuation cap , and a discount ; the original startup seed instrument, mostly replaced by SAFEs after 2013.
Convertible notes carry interest (typically 4-8% annually) and have a maturity date — usually 18-24 months. If the next round doesn't close in time, the notes are technically in default, putting founders in legal limbo. YC's 2013 SAFE removed both features entirely.
Both let an early investor wire money before a priced round. SAFE is YC's 2013 simplification of the older convertible note, and the differences are sharper than they look at first glance.
| Aspect | Convertible Note | SAFE |
|---|---|---|
| Maturity date | 12 to 24 months, then it's owed back | None |
| Interest accrued | 4 to 8% annually | None |
| If it never converts | Outstanding debt the company owes | Cap table footnote |
| Founder negotiation surface | Cap, discount, interest rate, and term | Just cap and discount |
| Era of choice | Pre-2014 US default | Post-2014 US default |