If you're raising a pre-seed round or joining an accelerator, you'll almost certainly be offered a SAFE or a convertible note. Both let investors fund you now and get equity later, without setting a price for your company today. But they are different instruments, with different risks for founders. Here's what you need to know.
What Is a SAFE?
A SAFE (Simple Agreement for Future Equity) is, in Y Combinator's words, "a short contract an investor signs" that gives them the right to stock in a future priced round.[1] It was created at YC by Carolynn Levy in 2013 as a simpler alternative to the convertible notes that dominated early-stage funding at the time.[1][2]
A SAFE is not debt. It doesn't accrue interest and has no maturity date.[4] The investor's money simply converts into shares when you raise a priced round, usually your seed or Series A.
SAFEs now dominate early-stage fundraising. In Q1 2025, SAFEs made up a record 90% of pre-seed rounds on Carta, with convertible notes at 10%.[9] Across 2025, US startups on Carta raised $10.4 billion on 50,316 SAFEs and convertible notes, and Carta calls the post-money SAFE with a valuation cap but no discount "the standard pre-seed instrument."[10]
What Is a Convertible Note?
A convertible note is a loan that converts into equity in a later priced round. Because it's debt, it accrues interest and has a maturity date.[4] If you haven't raised a priced round by that date, the noteholders may have the right to ask for repayment, or force a renegotiation.
In Osler's 2025 Deal Points Report, the median interest rate on convertible notes was 7% (down from 8% in 2024), and the median maturity was 24 months.[6]
SAFE vs Convertible Note at a Glance
| SAFE | Convertible note | |
|---|---|---|
| Legal form | Contract for future equity | Debt |
| Interest | None | Accrues (median 7% in 2025*) |
| Maturity date | None | Yes (median 24 months*) |
| Valuation cap | Common (post-money) | Common |
| Discount | Optional (often 20%) | Common (often 20%) |
| Repayment risk | No repayment obligation | Can be called at maturity |
| Paperwork | Short standard form | Longer, more negotiated |
* Medians from Osler's 2025 Deal Points Report, based on Osler's own deals.[6]
The Key Terms
Valuation cap
The cap is "the highest valuation at which a SAFE converts into shares."[3] If you raise your Series A at $30M but your SAFE has a $10M cap, the SAFE investor converts as if the company were worth $10M. That's their reward for investing early.
How high are caps today? In 2025, median caps on post-money SAFEs were around $10M for rounds of $250K to $1M, and around $15M for rounds of $1M to $2.5M, according to Carta.[10]
Discount
A discount lets early investors buy shares more cheaply than the new investors in the priced round. With a 20% discount, they pay 20% less per share.[3] In Osler's data, the median discount was 20% for both notes and SAFEs.[6]
MFN (most favored nation)
An MFN SAFE has no cap and no discount. Instead, it automatically gets the best terms of any SAFE you issue later.[3] YC uses one in its own deal: $375K of its $500K investment is an uncapped MFN SAFE.[7]
Pre-Money vs Post-Money SAFEs
The original 2013 SAFE used a pre-money valuation cap. In 2018, YC switched its standard to the post-money SAFE, which it has used ever since.[1] YC made the change because founders had started using SAFEs to raise large rounds over long periods, not just short bridges, and pre-money SAFEs made it hard to know how much of the company you'd sold.[2]
With a post-money SAFE, the cap includes all the SAFE money and the existing option pool, but not the new money from your priced round.[2] In other words, it's "post-SAFE money, but still pre-equity financing money."[4] The big advantage is that you can calculate exactly how much ownership you've sold.
A Worked Example
With a post-money SAFE, the math is simple: ownership sold = investment ÷ post-money cap.
- One investor: a $500K SAFE at a $5M post-money cap gives the investor 10% of the company.[5]
- A full round: if you want to raise $1M while selling 15%, you need a post-money cap of about $6.7M ($1M ÷ 0.15).[2]
- Mixed caps: $500K at a $5.5M cap (~9%) plus $500K at an $8.3M cap (~6%) still adds up to about 15%.[2]
One important detail: post-money SAFEs don't dilute each other, but all SAFE holders, including you, are diluted by the priced round when it happens.[2] Raising several SAFE rounds at once can add up to more dilution than founders expect. It's become a common enough concern that the Wall Street Journal asked in 2026 whether founders are "using too many SAFEs."[8]
Which Should You Use?
For most US pre-seed startups, the post-money SAFE is the default. It's standardized, cheap to put in place, and has no debt or maturity date hanging over the company. It's also what most accelerators, including YC, use.
A convertible note can still make sense when:
- An investor insists on it, often because they prefer the protection of debt.
- You're raising a short bridge between two priced rounds and the investors expect a note.
- You're incorporated in a country where SAFEs are less common or less tested legally.
Track your dilution as you go
Keep a simple cap table that models every SAFE or note you've signed and what each converts to at a few possible next-round valuations. It's the easiest way to avoid surprises at your seed or Series A. And before signing anything, have a startup lawyer review it. This article is general information, not legal advice.
Bottom Line
SAFEs and convertible notes do the same basic job, but SAFEs are simpler, have no interest or maturity, and are the standard at most accelerators. Whichever you use, understand your cap, any discount or MFN clause, and how much of the company you'll own after your next round.
Applying to accelerators? XRaze helps you compare programs and their deal terms, and write applications that stand out.
Sources
- [1]SAFE Financing Documents — Y Combinator
- [2]Post-Money SAFE User Guide (PDF) — Y Combinator
- [3]SAFE: Simple Agreement for Future Equity — Y Combinator
- [4]Demystifying SAFEs — DLA Piper
- [5]Fundraise with SAFEs — Stripe Atlas
- [6]2025 Deal Points Report: Convertible securities — Osler
- [7]The YC Deal — Y Combinator
- [8]Are Founders Using Too Many SAFEs? (WSJ Pro VC coverage) — Cooley
- [9]State of Pre-Seed: Q1 2025 — Carta
- [10]State of Pre-Seed: 2025 in Review — Carta