SAFE vs Convertible Note: Differences, Dilution Math and Stacking in 2026

SAFE vs Convertible Note: Differences, Dilution Math and Stacking in 2026

Last updated: September 2026 · Last verified: September 2026

Why did I write another SAFE vs convertible note guide?

Because every guide I could find explains what the two instruments are, the job my equity financing explainer already does, and stops where founders actually get hurt: the stack. In the rooms I set up, a founder raising $250K to $3M over a year, the range my seed funding guide covers end to end, typically signs eight to fifteen instruments at different caps, sometimes with a note in the middle, and learns at the Series A what it all cost; that count is my own observation, not a published benchmark. The rules are written in the Y Combinator SAFE documents and in Cooley's Series Seed convertible note form, and the arithmetic is exact, but almost nobody works it through. This post does, with a fictional company and every number reproducible in a free SAFE dilution calculator.

I'm Sean Yu, co-founder of Peony, a data room company built for fundraising rooms. I have helped hundreds of startups set up the room they raise their seed in, and the instruments folder is where I see the damage: a pre-money template from 2016, a note whose cap basis nobody can state, an MFN SAFE the founder forgot. This is not legal or tax advice; it is a practitioner's map, sourced to the documents.

TL;DR. A SAFE is a convertible security with no interest and no maturity; a convertible note is debt that converts. In Q2 2026, Carta counted 93% of US pre-seed rounds on SAFEs (95% by capital) and 91% of the SAFEs on its platform post-money, while convertible notes hit a record-low 7% of pre-seed rounds in Q1 2026; the median note interest rate was 7% in Q1 2025, the latest Carta figure I could verify. On a post-money SAFE, ownership sold equals amount divided by cap, and caps add (the Additive-Cap Rule); a note cap is a price against the pre-money share count, not a percentage (the Cap-Basis Mismatch). In my worked scenario a founder who expected 57.60% after a Series A holds 52.82%, and the largest single cause is the option-pool increase, not the SAFEs. A note adds a maturity clock on top of the priced-round clock (the Two-Clock Problem). Since July 4, 2025, Section 1202 excludes 50/75/100% of QSBS gain at 3/4/5 years for stock acquired after that date, which makes the unsettled SAFE holding-period start date matter more. UK founders who need SEIS/EIS use an ASA whose longstop HMRC expects to be no more than 6 months.

By the numbers (all figures below are Carta's book, US startups on the Carta platform, not the whole US market; Carta's pre-seed series counts unpriced instruments only, so none of these is a seed-stage share):

• 93% of pre-seed rounds, 95% of pre-seed dollars were SAFEs in Q2 2026; 91% of SAFEs were post-money; 94% of post-money SAFEs carried a cap in H1 2026, 73% cap-only and 21% cap plus discount (Carta, Aug 25, 2026).
• 7% of pre-seed rounds, 8% of pre-seed dollars were convertible notes in Q1 2026, a record low (Carta, May 14, 2026).
• $10.4B across 50,316 SAFEs and notes raised on Carta in 2025, instrument count down 13% vs 2024; median post-money caps of roughly $10M for $250K to $1M rounds and $15M for $1M to $2.5M rounds (Carta, Feb 19, 2026).
• 7% median note interest rate in Q1 2025, down from 8% in Q2 2024, the latest median I could verify (Carta, May 20, 2025).
• $15B+ raised by YC companies on SAFEs since Carolynn Levy created the instrument in 2013 (Y Combinator).

What is a SAFE?

A SAFE (Simple Agreement for Future Equity) is a contract under which an investor pays now and receives preferred stock later, when a priced round sets the price; it is not debt, carries no interest and has no maturity date. YC's SAFE page: "A SAFE is not a debt and not a loan — it has no interest and no maturity date — but it isn't stock until it converts into preferred shares." The documents page records that it was "created at Y Combinator by Carolynn Levy in 2013," and every form is free.

It was rewritten once: per the SAFE User Guide, in 2018 "it became a post-money convertible security." Version 1.0 is dated September 28, 2018; the current US cap and discount forms are Version 1.2 (February 2023) and the MFN form is Version 1.3, whose changelog YC has not published.

Three US variants exist, and choosing one is choosing how the conversion price is set:

• Valuation Cap, no Discount. "'Safe Price' means the price per share equal to the Post-Money Valuation Cap divided by the Company Capitalization"; on an Equity Financing the SAFE converts into the greater of the Purchase Amount divided by the round's lowest preferred price or divided by the Safe Price. This is the standard: 73% of post-money SAFEs on Carta in H1 2026 used a cap alone.
• Discount, no Valuation Cap. "'Discount Price' means the lowest price per share of the Standard Preferred Stock sold in the Equity Financing multiplied by the Discount Rate," written as 100 minus the discount, so 20% off reads as 80%. No Company Capitalization definition, no percentage until the round prices.
• MFN, no cap and no discount. Converts at the round price; Section 3 lets the holder adopt the terms of any later, more favorable convertible you issue.

Two things are deliberately not in the SAFE. There is no cap-and-discount form: YC removed it in Version 1.1 on August 28, 2021. And the pro rata right "lives in an optional, standardized side letter rather than in the SAFE itself," a one-page Pro Rata Agreement (Version 1.0, 2018) that per the Guide "can only be used with forms of the safe that have a Post-Money Valuation Cap." Two more answers founders need: "A SAFE has no maturity date," and "there is no threshold amount of money in the post-money SAFE that your company needs to raise to trigger the conversion." The note is the opposite on both.

What is a convertible note?

A convertible note is a loan written to convert into the next priced round instead of being repaid; it accrues interest, has a maturity date, and until conversion is a current obligation of the company. The SEC's Office of Investor Education and Advocacy, in its May 9, 2017 bulletin Be Cautious of SAFEs in Crowdfunding, written about SAFEs in Regulation Crowdfunding offerings before the 2018 post-money rewrite and expressly "neither a legal interpretation nor a statement of SEC policy," says: "Different from SAFEs, convertible notes generally represent a current legal obligation by the company to you for the outstanding amount of the note."

There is no single standard note, so I use the most transparent form I know: the Cooley LLP Series Seed convertible note package, Version 1.03 (September 3, 2024), published on GitHub for Delaware corporations.

• Interest. A blank, with "simple" and "compounded annually" both offered as bracketed choices, on a 365-day year. Every conversion clause converts "the outstanding principal amount of this Note and any unpaid accrued interest," so interest becomes shares unless drafted otherwise. YC's comparison page says interest accrues "often 2 to 8%"; Carta's median was 7% in Q1 2025, the latest median I could verify.
• Maturity. "All unpaid interest and principal shall be due and payable upon request of the Majority Holders on or after [_____] (the 'Maturity Date')." Section 2.3 adds a menu for a note still outstanding at maturity: conversion at the cap price, automatically or at an election. Extension is an amendment. No primary source publishes a median maturity.
• Qualified Financing. Conversion needs "an equity financing with total proceeds to the Company of not less than $[_______] (excluding the conversion of the Notes or other convertible securities issued for capital raising purposes (e.g., Simple Agreements for Future Equity))." The Cooley GO FAQ says the threshold "is typically set in a range that is one to two times the amount of money raised in the convertible debt round."
• Cap basis. Conversion is at the lesser of the discounted round price and the cap "divid[ed] by the number of outstanding shares of Common Stock of the Company [immediately prior to the Qualified Financing]," fully diluted "but excluding the shares... issuable upon the conversion of Notes or other convertible securities." The cap is a price per share against a pre-money count that excludes the converting instruments; whether the option pool sits inside that count is a bracketed choice. That is the Cap-Basis Mismatch, below.
• Change of control. On a sale first, the company repays "[(i) ]the outstanding principal amount of this Note plus any unpaid accrued interest on the original principal[, plus (ii) a repayment premium equal to [___]% of the outstanding principal amount of this Note]," or, at the holder's election, converts into common at the cap price. The premium is a negotiated percentage of principal; I could not verify any market multiple and will not print one.
• Approvals and seniority. The package ships a board consent approving the notes and reserving the conversion shares, with no stockholder consent document. The notes "shall be unsecured obligations of the Company"; amendments need the company plus the Majority Holders, and Events of Default are failure to pay when due and bankruptcy.

What are the differences between a SAFE and a convertible note that actually matter?

Seven differences change money or risk; the rest is drafting. Reference texts: the YC post-money SAFE (Version 1.2) and the Cooley Series Seed note (Version 1.03).

Same in both, which founders often assume otherwise:

How is the conversion price set on a SAFE or a note?

Four mechanisms set the price, and the instrument converts at whichever of the ones it carries is most favorable to the investor.

One closed form is worth memorizing: any instrument converting at a discount ends up owning amount divided by (1 minus discount) divided by the round's post-money valuation. A $250,000 discount-only SAFE at 20% into a $20M post-money round is 250,000 / 0.8 / 20,000,000 = 1.5625%. There is no percentage at signing, which is one reason, in my reading, that 94% of post-money SAFEs carry a cap.

Now the frame I most want founders to keep. Cap-Basis Mismatch: a $10M cap on a note applied to the pre-money share count is a different price from a $10M post-money SAFE cap, and a different number of shares. The SAFE cap fixes 2.60% of everything that exists the instant before the round, including the other SAFEs and the note. The note cap sets a price: $10,000,000 divided by the shares that existed before any convertible converted, $1.00 a share on a 10,000,000-share cap table. In the Bramblewick Labs scenario below, a $260,000 note with a $10M pre-money cap and a 20% discount takes 276,874 shares, 1.62% post-Series A. Run the same instrument as if its cap were a post-money SAFE cap and it takes 338,101 shares, 1.97%: a swing of 61,227 shares on one word, with founders down 0.34 points. The tell is the implied price, $0.7690 a share in the mis-modelled case, below both the $1.00 cap price and the discount price, which no properly drafted note produces.

A second layer: Cooley GO's note on pricing a round with converting instruments shows three methods (pre-money, percentage-ownership, dollars-invested) that give the same new investor 17.50%, 20% or 18.18% on identical inputs. Which one the term sheet uses is a negotiation.

What changed between the pre-money SAFE and the post-money SAFE in 2018?

The 2018 rewrite moved the SAFEs themselves inside the denominator, so each SAFE's ownership became a fixed, knowable percentage and the SAFEs stopped diluting each other. Under the 2013 form, ownership was "standardized on a pre-money basis and inclusive of the Series A option pool increase," so it "included an unknowable variable," and "the safes all diluted each other."

The post-money definition is the sentence most explainers get backwards. Guide: "The Post-Money Valuation Cap is 'post' all of the safe money. It is NOT also 'post' the Equity Financing (e.g. Series A) money... The Post-Money Valuation Cap is 'post' the Options and option pool existing prior to the Equity Financing. It is NOT also 'post' the new or increased option pool adopted as part of the Equity Financing." The percentage is fixed against everything that exists before the round; the round and its pool increase then dilute the SAFEs like everyone else: "the safes are not diluted by each other, [but] the safes will be diluted by the new money raised in the Equity Financing."

That produces the Additive-Cap Rule: post-money percentages add; they never average. YC's arithmetic: "$500k at a $5.5M cap (~9%) plus $500k at an $8.3M cap (~6%)" is about 15% sold, and its warning is "Five $100k SAFEs at a $5M cap is 10% sold, not 2%." A founder who averages the headline caps always understates what was sold, because the dollar-weighted cap is at or below the arithmetic average. The pre-existing option pool is diluted alongside the founders; earlier SAFEs are not.

What did the rewrite cost founders? Variant (a) of my scenario runs the same three SAFEs, note and Series A on the original pre-money form. The three investors end at 13.33% of the post-Series A company instead of 15.55%, and founders keep 55.04% instead of 52.82%. About 2.2 points went to investors; what founders got back is that everybody can now compute those numbers on signing day. With 91% of SAFEs post-money, do not fight the form; manage the total percentage you sell.

What does a stacked SAFE and note round actually cost the founders?

More than the napkin says, and the biggest line is one founders almost never model. Bramblewick Labs, Inc. is a fictional Delaware C-corp invented for this post; nothing below is market data, and every figure is the exact arithmetic consequence of these inputs. Every table reproduces in the SAFE dilution calculator, which solves the same circular system.

Inputs. Two founders hold 9,000,000 common shares plus a 1,000,000-share unissued pool. Over twelve months the company signs three post-money SAFEs and one note: $400,000 from angels at a $5M cap (month 0), $1,000,000 from a seed fund at a $10M cap (month 7), $350,000 from a strategic at a $14M cap (month 11), and, at month 12, a $250,000 family-office note at 6% simple interest, 24-month maturity, 20% discount, $10M cap measured pre-money against the 10,000,000-share count. The Series A closes at month 20: $4,000,000 at $16M pre-money, $20M post, with the unissued pool topped up to 10% of the post-round company inside the pre-money. The note has accrued eight months of interest, $10,000 ($250,000 × 6% × 8/12), so $260,000 converts. No side letters, interim option grants, anti-dilution or liquidation-preference waterfall.

The pre-round table. This is the only percentage a post-money SAFE ever promises: its share of Company Capitalization the instant before the Series A. Company Capitalization is 12,926,886 shares. Percentage columns in every table here use the largest-remainder convention, so each column sums to exactly 100.00% and a cell can sit 0.01 above or below the raw division.

The three SAFE percentages are exactly amount divided by cap, fixed the day each was signed. The note converted on its discount, not its cap: cap price $1.0000, discount price $0.9391 (80% of the $1.1738 Series A price), and "the lesser of" picked the discount.

The post-Series A cap table. Series A price $1.1738 ($16,000,000 divided by 13,630,727 pre-money fully diluted shares). Post-round fully diluted 17,038,408 shares.

The pool increase adopted in the round is 703,841 shares, 4.13% of the post-round company. The SAFE holders together hold 15.55% (exactly 15.5532%; the rounded cells sum to 15.56%) against the 20.50% of Company Capitalization they were promised; the 4.95-point gap is the Series A (20.00%) plus the pool increase (4.13%), the identity in YC's Guide: 20.50% times (1 minus 20.00% minus 4.13%) equals 15.55%.

Expectation versus actual. The napkin said "we sold 20% on SAFEs, then 20% in the A": 90% times 0.80 times 0.80 = 57.60%. The founders hold 52.82%. The 4.78-point gap decomposes exactly:

The pool is the largest item and the one founders never model: 703,841 newly reserved shares, created in the pre-money, paid for by everyone except the incoming lead. The SAFE stack, the thing every explainer warns about, is the smallest of the three.

The two habits that close the gap. First, model the priced round the way the lead will: pre-money valuation divided by a fully diluted count that includes every converted instrument and the pool increase. Second, treat every note cap as a price, ask what share count it is measured against, and write the answer into the note.

Variant (b): all three SAFEs at one $10M post-money cap. The same $1.75M is 17.50% of Company Capitalization instead of 20.50%; the Series A prices at $1.2234 on 16,347,439 post-round shares; SAFE 1 takes 497,728 shares (3.04%), SAFE 2 1,244,321 (7.61%), SAFE 3 435,512 (2.66%), the note 265,646 (1.63%), and founders keep 55.05% instead of 52.82%. The first, smallest check does more than all of that work: repricing SAFE 1 alone from $5M to $10M is worth 2.98 points, while dropping SAFE 3's cap from $14M to $10M hands 0.74 points back, and 2.23 is the net.

Sensitivity. Had SAFE 1's cap been $4M instead of $5M, founders would end at 51.34%, 1.48 points lower; deleting the entire $350,000 SAFE 3 would leave them at 54.68%, so one million dollars of cap on the angel round is worth 0.80 of an entire later check. Had the note instead been a $250,000 post-money SAFE at the same $10M cap, no interest, no discount, founders would end at 52.56%: a post-money basis is more generous to the investor than the same headline cap struck pre-money.

One caveat: the investors' percentages are a floor and the founders' a ceiling. YC says that if the round "does not sufficiently exceed the safe's Post-Money Valuation Cap" the holder "will receive a greater number of shares than was originally estimated." Here every cap binds.

What happens at maturity, and at a sale before the priced round?

A note has two clocks and a SAFE has one; that is the Two-Clock Problem. Every convertible waits on the priced-round clock. A note adds the maturity clock, and the two are independent: a company can be twelve months from a Series A and two months from maturity.

At maturity. The Series Seed form makes principal and unpaid accrued interest "due and payable upon request of the Majority Holders on or after" the Maturity Date, with Section 2.3's alternative of conversion at the cap price. What actually happens, per the Cooley GO FAQ: "it is commonplace for the company to reach out to the holders prior to maturity and get the holders to agree to an extension... it's pretty rare for an investor group to aggressively seek repayment at maturity." Missing the date is not itself a default under this form: principal only becomes due "upon request of the Majority Holders," and the Event of Default is failing to pay once it is due. Once a demand is made and not met, the Majority Holders can accelerate "at the option and upon the declaration of the Majority Holders." The SAFE has none of this: it "could remain outstanding for a long time without the need to 'extend' any dates or time periods."

At a sale. On a Liquidity Event (a Change of Control, Direct Listing or IPO) the SAFE's Section 1(b) pays "the greater of (i) the Purchase Amount (the 'Cash-Out Amount') or (ii) the amount payable on the number of shares of Common Stock equal to the Purchase Amount divided by the Liquidity Price," where the Liquidity Price is the cap divided by the Liquidity Capitalization, a count that excludes the unissued pool. The note's Section 2.4 requires cash repayment of principal plus interest plus any bracketed premium, or holder-elected conversion into common at the cap. The Cooley GO FAQ notes that on a sale "the notes must be repaid (sometimes with a premium cash payment)," which is the acqui-hire squeeze.

At a shutdown. On a Dissolution Event the SAFE gets only the Cash-Out Amount, and Section 1(d) fixes the order: "Junior to payment of outstanding indebtedness and creditor claims, including contractual claims for payment and convertible promissory notes," on par with other SAFEs and preferred, senior to common. The note is that indebtedness, which is why the User Guide says "it's generally not advisable to issue both convertible notes and safes since they are treated differently in a Liquidation Event or Dissolution Event." If you must, tell every SAFE holder there is a note ahead of them before they wire.

When does the QSBS holding period start on a SAFE versus a note?

Nobody knows for a SAFE, the answer is closer to settled against the holder for a note, and the July 2025 law change made the question more valuable.

The statute changed on July 4, 2025. Public Law 119-21, Section 70431, rewrote 26 U.S.C. Section 1202. For qualified small business stock acquired after the enactment date, Section 1202(a)(5) excludes gain on a table: "3 years 50%; 4 years 75%; 5 years or more 100%." The per-issuer cap in Section 1202(b)(4) is the greater of $15,000,000 (indexed for taxable years beginning after 2026) or 10 times the adjusted basis of the stock sold, versus $10,000,000 or 10 times basis for stock acquired on or before that date. The gross-asset test in Section 1202(d)(1) rose from $50,000,000 to $75,000,000 for stock issued after enactment. The effective dates are three rules, not one: the tiers are keyed to stock acquired after July 4, 2025; the $15M cap applies to taxable years beginning after that date; the $75M test applies to stock issued after it.

For a SAFE, the start date turns on a characterization the IRS has never made. Section 5(g) of the YC SAFE says the parties intend it "to be characterized as stock, and more particularly as common stock for purposes of Sections 304, 305, 306, 354, 368, 1036 and 1202 of the Internal Revenue Code." That is intent. Scott Dolson's guide at Frost Brown Todd (April 2024, updated March 2025) states that "the IRS and the Tax Court have remained silent on the federal income tax treatment of SAFEs" and "to date there are no tax authorities addressing SAFEs in the context of Sections 1202 or 1045." The fork: if a SAFE is stock, the holding period "would commence when the SAFE is issued"; if not, it "would not commence until the SAFE converts into preferred stock." Dolson leans toward stock treatment but warns that the parties' intent "does not bind either the IRS or the judiciary, and stockholders will bear the burden of proof if challenged." Kruze Consulting takes the other side in print: the holding period "generally starts on the date the SAFE converts into preferred or common shares, not when the SAFE is first issued." Sources disagree, so I will not pick one; the conservative planning assumption is conversion.

For a note, the debt label is mostly binding. Dolson's companion piece explains why: Section 385(c)(1) makes the issuer's characterization of an interest as stock or debt "binding on such issuer and on all holders" unless the holder discloses inconsistent treatment on its own return, and a company that deducts interest and issues Forms 1099-INT or 1099-OID has called the note debt. His rule: "if qualifying for the Section 1202 gain exclusion is a planning priority, the parties should avoid the debt label and call the interest stock."

My analysis of why this matters more now: before the change the question was binary, five years or nothing. With value at three and four years, the same start-date uncertainty can move a SAFE holder between tiers on the same exit date, an argument a noteholder mostly lacks. Take all of this to a tax adviser.

What are the SAFE and note equivalents outside the US?

Most non-US markets built their own instrument, and the local constraint is usually a tax relief or a corporate-law formality that a US SAFE ignores.

United Kingdom: the Advance Subscription Agreement. UK angels who want SEIS or EIS relief use an ASA, a pre-paid subscription for shares, not a SAFE and not a loan note. HMRC's manual (VCM33025 for SEIS, VCM12025 for EIS) says HMRC "will not consider ASAs suitable" unless the agreement "does not permit the subscription payment to be refunded under any circumstances, cannot be varied, cancelled, or assigned, bears no interest charge, and has a longstop date by when the shares purchased must be issued." On the longstop: "As a general rule... HMRC expects a longstop date to be no more than 6 months from the date the ASA is entered into," and beyond that "HMRC is unlikely to be able to provide an advance assurance." That is advance-assurance guidance, not a statutory test; apply before signing. A convertible loan note fails twice: VCM12020 requires the subscription price to be "paid wholly in cash," and VCM33025 and VCM12025 add that agreements used "as a means of converting a debt" into shares "will not be considered eligible." My UK pre-seed and seed investor guide names the funds that expect ASAs.

France: the BSA-AIR. The Bon de Souscription d'Actions, Accord d'Investissement Rapide, was launched by TheFamily with SB Avocats in December 2013, explicitly inspired by the YC SAFE, as an alternative to convertible notes whose duration, interest rate and accounting treatment were the stated drawbacks (Maddyness, Dec 23, 2013). Legally it is an autonomous share-subscription warrant issued by private deed: the investor buys the warrant for cash now and exercises it into new shares later, with no loan to repay and no shareholder rights until exercise. It is fast but not paperwork-free: SeedLegals France lists a president's report, a unanimous shareholders' decision, the AIRA and a subscription form. I could not verify the tax treatment from a primary source; check it with French counsel.

Germany: the Wandeldarlehen. The German norm is a convertible loan, for a structural reason: new GmbH shares exist only after a shareholder-resolved capital increase and a notarially recorded or certified subscription declaration under Section 55 GmbHG, so nothing converts automatically and the instrument must oblige the parties to run that process. Bird & Bird's March 2023 analysis sets out the form debate: Section 15(4) GmbHG requires notarization where the loan creates obligations to acquire or transfer shares, and OLG Zweibrücken (May 17, 2022, 8 U 30/19) declared a convertible loan with mandatory conversion void for lack of form. Bird & Bird reported an appeal pending at the BGH when it wrote; I could not confirm the outcome from a primary source, and the docket number the article gives (II ZR 69/22) resolves on dejure.org to a different BGH judgment of November 21, 2023 on partner liability in insolvency, so treat the form question as open. Bird & Bird recommends notarizing where conversion is mandatory. My German pre-seed investor guide covers who writes convertible loans.

Canada, the Cayman Islands and Singapore: YC's own variants. YC publishes a valuation-cap post-money SAFE, and only that form, for companies formed in Canada, the Cayman Islands and Singapore, each headed "seek advice from an attorney licensed in" that country. The Canada form carries the "4 months and a day" resale legend and a "private issuer" representation under Section 73.4 of the Securities Act (Ontario) and NI 45-106. The Cayman form converts "subject to the Company's obligation to update its register of members," because the register, not the contract, makes the investor a shareholder. The local Singapore standard, though, is the Singapore Academy of Law and SVCA's VIMA CARE, drafted "in the form of a convertible note" with a Maturity Date, a Minimum Equity Raise and a cash-out Multiple on a liquidity event; a Singapore investor who sends you a CARE is sending something closer to a note than a SAFE.

India: the iSAFE. 100X.VC pioneered the iSAFE in July 2019. It is "not a debt instrument," but "to comply with applicable Indian law, an iSAFE note takes the legal form of compulsorily convertible preference shares (CCPS)," which means the company's "authorised and paid-up capital must be increased" by the investment, the CCPS sit on the cap table from day one, and the instrument converts at the earlier of a liquidity event or "the end of three years from the date of issue." My India accelerators guide shows it in use.

When should you choose a SAFE and when should you choose a note?

Choose the SAFE by default in the US, and a note when a specific fact about the investor, the timeline or the jurisdiction makes debt the right character.

Two concessions. If the company has a real chance of being sold or wound down before a priced round, the investor is better protected by a note, and a founder who wants that investor should say so rather than argue. And if QSBS is the investor's planning priority, neither instrument is clean; Dolson's advice is to issue actual stock, which usually means a small priced round.

On 409A: you do not need a 409A valuation to issue SAFEs, but a cap is not a 409A and does not set your option strike price; Treasury Regulation 1.409A-1(b)(5)(iv)(B) requires "the reasonable application of a reasonable valuation method" for common stock, and a negotiated ceiling on a future preferred price is not that. A meaningful note round is usually a material event that triggers a fresh 409A (Kruze).

What do investors ask for before wiring, and what goes in the data room for a SAFE or note round?

Before wiring, a serious investor asks for the corporate basics, the instrument itself unmodified, every prior instrument, and a cap table showing where their check lands; at the Series A, the lead's counsel reconstructs all of it from the beginning. Build the set once and keep it current.

The pre-wire request, and why each item is there:

• Certificate of incorporation and bylaws, which must authorize the preferred the SAFE converts into.
• The board consent for the issuance, which YC requires "before the company issues any safes."
• Every prior SAFE and note with its side letters, because the new percentage depends on the caps already sold and a note ahead of the SAFEs changes the downside.
• The current pro forma cap table, with each post-money SAFE at amount divided by cap and each note at its cap-basis price.
• The accredited-investor representation, because the SAFE can be rescinded if the holder is not accredited at the Equity Financing, and Rule 506(b) allows only 35 non-accredited purchasers in any 90-calendar-day period (17 CFR 230.506).
• The Form D and state notice filings: Form D within 15 calendar days of the first sale, plus the state notice filings and fees that Securities Act Section 18 preserves.

The five-folder layout I set up for a SAFE or note round, on a Peony data room or anywhere else:

1. Company. One-pager, deck, certificate of incorporation, bylaws, good standing, EIN and bank confirmation.
2. Financials. Model, monthly burn and runway, bank statements, revenue schedule if there is revenue.
3. Instruments. Every signed SAFE and note as executed, every side letter, the board consent for each issuance, the wire confirmation behind each instrument, MFN notices sent and elections received, and the current pro forma cap table. This folder is the Disclosure Record.
4. Product and customers. Metrics dashboard, pipeline, customer contracts or LOIs.
5. Team and legal. Founder stock purchase agreements and 83(b) elections, IP assignments, employment and contractor agreements, the option plan.

The fuller template is in my seed round data room post and the startup data room checklist, and what the lead reads next is in the Series A data room guide; this post is about folder three.

Disclosure Record is the frame: at the Series A the lead's counsel reconstructs what every earlier investor was told, when, and on what terms, and reconciles the cap table to the signed set. Assembled as the round happened, that takes an afternoon; scattered across email threads, it takes weeks. Four habits keep it clean:

• One link per investor. Each angel, the strategic and the family office see their own instrument and the shared folders; the lead sees the whole instruments folder. (Visitor groups do this.)
• An NDA-gated diligence tier. Deck and one-pager open; instruments, cap table and model behind an NDA accepted before viewing, so who saw the cap table is itself on the record.
• Version replacement, not version sprawl. When a new SAFE closes, the pro forma is replaced under the same link so everyone reads the current version and the superseded one is retired. (Update a live link rather than re-sending.)
• Per-investor analytics. Knowing that the lead's counsel opened the note twice and never opened the MFN notice tells you what the diligence call will be about.

Here is where I run Peony, a data room company, and where it fits honestly. The instruments folder in a Peony room is one link per investor, with page-by-page analytics per viewer on every tier, including Free. Data Room at $52 per admin per month is the tier for the round itself: per-viewer dynamic watermarks on the signed instruments and cap table, Advanced NDA with a signed PDF to both parties, granular per-file permissions and a custom domain. Business at $30 covers the early angel phase: Simple NDA (a click-to-acknowledge gate logged in analytics, no signed PDF), download prevention, screenshot protection and link revocation. Free covers the first deck share: up to 50 documents, page analytics, password protection and link expiry. That is how 6,800+ customers run rooms; viewers are always free, so adding the lead's counsel never changes the bill. The concession: three angels and one document is a shared drive folder, and you should not pay anyone for it. Peony earns its place when there are eight instruments, a note under the SAFEs and a lead's counsel asking for the record.

What is the bottom line on SAFE vs convertible note?

The SAFE is the default and the note is the exception, and the founder's real risk is not the choice but the stack. Post-money percentages add, so price the first, lowest-cap check carefully (Additive-Cap Rule). A note's cap is a price, not a percentage, so write down what it is measured against (Cap-Basis Mismatch). A note's maturity clock ignores your Series A timeline and ranks ahead of every SAFE in a sale or wind-down (Two-Clock Problem). The biggest gap between expectation and outcome is the option-pool increase, which only a model reveals. Keep the signed set, consents, wires and pro forma in one place from the first check (Disclosure Record), and the Series A reconstructs itself.

Related resources

• What Is Equity Financing?, the definitional layer under this post.
• Seed Funding Guide, how a seed round comes together from targeting to close.
• Startup Fundraising Rounds Guide, the round-by-round narrative.
• Seed Round Data Room, the eight-folder template with tab-level specs.
• Series A Data Room, what the lead's counsel reads after the instruments folder.
• Startup Data Room Checklist, the full document list by stage.
• How to Raise Capital, the process view across instruments.
• Data Room for Investors, the investor-side reading of a founder's room.
• SAFE Dilution Calculator, the free tool that reproduces every table in this post.

Frequently asked questions

I'm raising a $1M pre-seed from angels and one seed fund, so should I raise on a SAFE or a convertible note?

For a $1M US pre-seed with no lead insisting on debt, raise on the YC post-money SAFE. The market already has: Carta counted 93% of pre-seed rounds on SAFEs in Q2 2026, and convertible notes fell to a record-low 7% of pre-seed rounds in Q1 2026. The SAFE has no interest, no maturity and no minimum round size to trigger conversion, so nothing comes due if the priced round takes three years. A note fits when the investor's mandate requires debt or when you are bridging to a round you can already see. Use one instrument for the whole round: YC says mixing notes and SAFEs is generally not advisable because notes rank ahead of SAFEs in a wind-down.

As a first-time founder on a Delaware C-corp, is a post-money SAFE or a pre-money SAFE better for me?

Use the post-money SAFE. It has been the YC standard since September 2018, and 91% of SAFEs on Carta in Q2 2026 were post-money, so a pre-money form now signals a stale template. The trade-off is real: on a post-money SAFE each investor's percentage of Company Capitalization is fixed at signing (amount divided by cap), so every later SAFE dilutes you, not the earlier investors. In my Bramblewick Labs illustration the same three SAFEs leave founders at 52.82% post-Series A on post-money terms versus 55.04% on the original pre-money form. Those 2.2 points buy knowledge: you and your lead can compute the dilution the day you sign. Pick post-money, then manage the total percentage you sell.

I'm an angel writing a $50K check into a pre-seed, so should I accept a SAFE or insist on a convertible note?

I would accept a post-money SAFE with a cap and not insist on a note unless I needed the debt character for a specific reason. The SAFE fixes your percentage of Company Capitalization at signing, converts at the better of the cap price or the round price, and on a sale pays the greater of your money back or your as-converted share. A note adds interest (Carta's median was 7% in Q1 2025, the latest I could verify) and a maturity date, but the Cooley GO FAQ says it is pretty rare for an investor group to aggressively seek repayment at maturity. A note does rank ahead of SAFEs if the company is sold or wound down first. Confirm you are accredited, because the SAFE lets the company rescind it if you are not.

My lead is offering a $10M cap, so is a $10M convertible note cap the same as a $10M post-money SAFE cap?

No; that is the Cap-Basis Mismatch. A $10M post-money SAFE cap fixes a percentage of Company Capitalization at amount divided by cap, so $260,000 buys 2.60% of everything outstanding just before the priced round, including the other SAFEs and notes. A $10M convertible note cap, in the Cooley GO Series Seed form, is a price: the cap divided by the fully diluted shares immediately before the round, excluding the converting notes and SAFEs, with the option pool a bracketed drafting choice. In my Bramblewick Labs illustration the same $260,000 note takes 276,874 shares (1.62% post-Series A) on a pre-money basis and 338,101 shares (1.97%) if the cap is modelled as post-money, a 61,227-share swing on one word. Ask what the cap is measured against and write the answer into the note.

Each of my angels wants a different cap, so should I do one SAFE at one cap or let each investor have their own?

Let each investor have their own cap if that is the price of closing them, but track the sum, because post-money caps add: each SAFE's percentage is its amount divided by its cap, and the percentages sum. That is the Additive-Cap Rule; YC's own example is $500K at a $5.5M cap (about 9%) plus $500K at an $8.3M cap (about 6%) for roughly 15% sold. You cannot average the caps. In my Bramblewick Labs illustration, $1.75M raised on caps of $5M, $10M and $14M sells 20.50% of Company Capitalization; the same $1.75M on a single $10M cap sells 17.50%, and the first $400,000 at the lowest cap does more than all of that work: repricing it alone from $5M to $10M is worth 2.98 points, while the strategic's cap dropping from $14M to $10M hands 0.74 points back, for a net 2.23. Price the first, smallest check most carefully.

I've signed six SAFEs at different caps over 14 months, so how do I calculate my dilution before a Series A?

Add them up, then apply the round. First, divide each post-money SAFE's amount by its cap; the sum is the percentage of Company Capitalization you have sold, fixed today. Second, the Series A investor's percentage and the option-pool increase both come out of everyone who existed before the round, so each SAFE holder ends at its percentage times (1 minus the Series A percentage minus the pool-increase percentage), the identity in YC's User Guide. Third, a convertible note converts at a price, not a percentage, so it needs the share count. That circular solve is what the free SAFE dilution calculator does, and it reproduces every table in this post. Then put the output in the pro forma cap table in your data room.

I stacked SAFEs at different caps and now I own less than I thought, so what actually happened?

Three things happened, none hidden in the documents. First, the Additive-Cap Rule: each SAFE sold a fixed percentage of Company Capitalization, and every new SAFE at a lower cap came out of you, not the earlier investors, because post-money SAFEs do not dilute each other. Second, if there was a note, its cap was a pre-money price, so its share count grew as the SAFEs converted. Third, the priced round diluted you twice: once for the new money and once for the option-pool increase the lead put in the pre-money. In my Bramblewick Labs illustration a founder who expected 57.60% (90% times 0.80 times 0.80) holds 52.82%, and the 4.78-point gap decomposes as 0.36 points for the true SAFE percentage, 1.54 for the note and 2.88 for the pool increase. The pool is the line founders never model.

My $500K convertible note matured and we still haven't raised a Series A, so what happens now?

Read Section 2.3 of your note; maturity is a menu, not a cliff. In the Cooley GO Series Seed form, principal and unpaid accrued interest become due and payable upon request of the Majority Holders on or after the Maturity Date, or convert at maturity into common or a new preferred series at the cap price, depending on the bracket chosen. The Cooley GO FAQ says it is commonplace for the company to reach out to the holders prior to maturity and get the holders to agree to an extension, and pretty rare for an investor group to aggressively seek repayment. So talk to the Majority Holders before the date, paper the extension as an amendment, and read the events-of-default clause, because failure to pay when due is one.

An investor wants 6% interest and a 24-month maturity on a $500K note. Is that a red flag, and what will I owe?

It is not a red flag; it is a convertible note doing what notes do. YC's comparison page describes note interest as accruing at often 2 to 8%, and Carta's median rate was 7% in Q1 2025, the latest I could verify, so 6% sits inside the range. On $500,000 at 6% simple interest for the full 24 months you accrue $60,000, so $560,000 converts at maturity; if a priced round closes at month 12, $30,000 has accrued and $530,000 converts. Negotiate the two Two-Clock Problem clauses: what happens at maturity (repayment on demand versus conversion at the cap) and what the note is owed on a sale before a priced round (principal plus interest, sometimes plus a premium stated as a percentage of principal). And confirm the cap basis is written down.

I gave my first angel an MFN SAFE, so how does the MFN cascade when I later sign a SAFE with a better cap?

Your MFN SAFE has no cap and no discount. Section 3 of YC's MFN form says that if you later issue Subsequent Convertible Securities with more favorable terms, including a valuation cap and/or discount, you must promptly send the investor written notice with a copy of the new instrument, the investor has 10 days to elect, and you then amend and restate the MFN SAFE to be identical to the later instrument other than the Purchase Amount. It is one-shot and all-or-nothing: no cherry-picking, and once amended the MFN is gone unless the later SAFE also carries one. Side letters that do not amend the security do not trigger it (the February 2023 Version 1.2 change). The MFN date is the later of signing or the wire, so fund your lower-cap SAFEs before issuing an uncapped MFN.

I'm a UK founder raising from EIS angels, so should I use a YC SAFE or a British advance subscription agreement?

Use an Advance Subscription Agreement, not a YC SAFE, if your angels need SEIS or EIS relief. HMRC's manual (VCM33025 for SEIS, VCM12025 for EIS) will not consider an ASA suitable unless the payment cannot be refunded under any circumstances, the agreement cannot be varied, cancelled or assigned, it bears no interest, and it has a longstop date by which the shares must be issued; as a general rule HMRC expects that longstop to be no more than 6 months and is unlikely to give advance assurance beyond it. A convertible loan note fails twice: shares must be subscribed wholly in cash, and HMRC says instruments used to convert a debt into shares are not eligible. A US SAFE has no longstop at all. Apply for advance assurance before you sign; my UK pre-seed investor guide names the funds that expect ASAs.

I invested through a SAFE in 2025, so when does my QSBS holding period actually start?

Nobody can tell you for certain, and I would plan on the conservative answer. Section 5(g) of the YC SAFE says the parties intend it to be treated as stock for Section 1202 purposes, but Frost Brown Todd's guide notes the IRS and the Tax Court have remained silent on SAFEs, and that intent does not bind the IRS or the courts. If a SAFE is stock, the holding period runs from issuance; if it is a prepaid forward contract, from conversion; Kruze Consulting states flatly that it generally starts at conversion. The stakes rose on July 4, 2025: for stock acquired after that date Section 1202 excludes 50% of gain at 3 years, 75% at 4 and 100% at 5. For a convertible note the answer is closer to settled against you, because Section 385(c)(1) binds holders to the issuer's debt characterization. Ask a tax adviser before relying on either date.

SAFEs are free to download, so do I still need a lawyer, and what does a SAFE round cost versus a note round?

The forms are free, YC's generator is free, and you should still have a lawyer look at the round, just not at each SAFE. What costs money in a SAFE round is everything around the form: the board consent YC says you must have before issuing, the accredited-investor check on each holder, the Form D that Rule 503 requires within 15 calendar days of the first sale, any state notice filings, and the pro forma cap table. A note round adds a note purchase agreement, the notes themselves, a negotiated maturity and change-of-control clause, and interest accounting, so it is more expensive to paper. I have not seen a defensible public benchmark for the dollar difference and will not invent one; the big legal bill comes later, when Series A counsel reconstructs what you signed.

We're closing SAFEs from angels, a strategic and a family office over six months, so how do we keep the signed instruments and the disclosure record straight for the Series A lead's diligence?

Build the Disclosure Record as you go, not at the Series A. The lead's counsel will reconstruct every executed instrument with its cap, discount, MFN and any pro rata side letter, the wire confirmation behind each, the board consent for each issuance, each holder's accredited-investor status, the MFN notices sent and elections received, and a pro forma cap table that reconciles to the signed set. I run Peony, a data room company, and that is what the instruments folder in a Peony room is for: one link per investor, so each angel, the strategic and the family office see only their own instrument while the lead sees the whole set, with per-investor page analytics showing which documents counsel actually opened. Data Room at $52 per admin per month adds per-viewer dynamic watermarks and Advanced NDA with a signed PDF; Business at $30 covers Simple NDA, download prevention and link revocation for early angels; Free covers a tracked deck link with page analytics and link expiry. 6,800+ customers run rooms this way. If it is three angels and one document, a shared drive is fine.

Sources

All retrieved September 9, 2026 unless noted.

• Y Combinator, "The SAFE: The standard way startups raise money" (documents page, redirects to /safe#downloads): https://www.ycombinator.com/documents and https://www.ycombinator.com/safe
• Y Combinator, "SAFE vs. Convertible note vs. Priced Equity Round": https://www.ycombinator.com/safe/safe-vs-convertible-note
• Y Combinator, Postmoney Safe, Valuation Cap Only (Version 1.2): https://bookface-static.ycombinator.com/assets/ycdc/Postmoney%20Safe%20-%20Valuation%20Cap%20Only%20-%20FINAL-f2a64add6d21039ab347ee2e7194141a4239e364ffed54bad0fe9cf623bf1691.docx
• Y Combinator, Postmoney Safe, Discount Only (Version 1.2), MFN Only (Version 1.3) and Pro Rata Side Letter (Version 1.0), linked from the documents page
• Y Combinator, Post-Money SAFE User Guide (PDF): https://bookface-static.ycombinator.com/assets/ycdc/SAFE%20User%20Guide-a47c6588327d73aa2799e61ed7c2cae9f1a0ee9acfa9c43b62039dc06e715832.pdf
• Y Combinator, Postmoney Safe, Valuation Cap Only, Canada, Cayman and Singapore forms, linked from the documents page
• Cooley LLP, Series Seed convertible note package, Version 1.03 (September 3, 2024): https://github.com/CooleyLLP/seriesseed
• Cooley GO, "Frequently Asked Questions: Convertible Debt": https://www.cooleygo.com/frequently-asked-questions-convertible-debt/
• Cooley GO, "Calculating Share Price with Outstanding Convertible Notes or Safes": https://www.cooleygo.com/calculating-share-price-outstanding-convertible-notes-or-safes/
• Carta, "In the pre-seed market, valuation caps on new SAFEs keep getting bigger," Kevin Dowd, August 25, 2026: https://carta.com/data/safe-valuation-caps-q2-2026/
• Carta, "State of Pre-Seed: Q1 2026," Hamza Shad, May 14, 2026: https://carta.com/data/state-of-pre-seed-q1-2026/
• Carta, "State of Pre-Seed: 2025 in review," Hamza Shad, February 19, 2026: https://carta.com/data/state-of-pre-seed-2025/
• Carta, "State of Pre-Seed: Q1 2025," Hamza Shad, May 20, 2025: https://carta.com/data/state-of-pre-seed-q1-2025/
• 26 U.S.C. Section 1202, current text with 2025 amendment and effective-date notes: https://www.law.cornell.edu/uscode/text/26/1202
• Public Law 119-21, Section 70431: https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm
• Scott Dolson, "Guide to the Federal Income Tax Treatment of SAFEs," Frost Brown Todd, April 16, 2024 (updated March 10, 2025): https://frostbrowntodd.com/guide-to-the-federal-income-tax-treatment-of-safes/
• Scott Dolson, "Can Convertible Debt or SAFEs Qualify as QSBS for Section 1202 Gain Exclusion?", FBT Gibbons, February 22, 2021 (updated March 17, 2025): https://fbtgibbons.com/can-convertible-debt-or-safes-qualify-as-qsbs-for-section-1202-gain-exclusion/
• Kruze Consulting, "SAFE Notes Accounting": https://kruzeconsulting.com/blog/safe-notes-accounting/
• Kruze Consulting, "Do Convertible Notes Lower 409A Values?": https://kruzeconsulting.com/blog/can-a-convertible-note-decrease-your-409a-valuation/
• SEC Office of Investor Education and Advocacy, "Investor Bulletin: Be Cautious of SAFEs in Crowdfunding," May 9, 2017: https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-52
• 17 CFR 230.506 (Rule 506): https://www.ecfr.gov/current/title-17/chapter-II/part-230/section-230.506
• 17 CFR 230.503 (Form D): https://www.ecfr.gov/current/title-17/chapter-II/part-230/section-230.503
• 15 U.S.C. Section 77r (Securities Act Section 18): https://www.law.cornell.edu/uscode/text/15/77r
• 26 CFR 1.409A-1: https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.409A-1
• HMRC Venture Capital Schemes Manual, VCM33025 (SEIS: advance subscription agreements), page updated July 30, 2026: https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm33025
• HMRC Venture Capital Schemes Manual, VCM12025 (EIS: advance subscription agreements): https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm12025
• HMRC Venture Capital Schemes Manual, VCM12020 (EIS: shares requirement): https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm12020
• Maddyness, "TheFamily et SB Avocats lancent AIR (Accord d'Investissement Rapide)," December 23, 2013: https://www.maddyness.com/2013/12/23/finance-thefamily-et-sb-avocats-lancent-air-accord-dinvestissement-rapide/
• SeedLegals France, "BSA Air": https://seedlegals.com/fr/financement-startup/bsa-air/
• Bird & Bird, "Formerfordernisse bei Wandeldarlehen," March 22, 2023: https://www.twobirds.com/de/insights/2023/germany/formerfordernisse-bei-wandeldarlehen
• dejure.org, BGH, 21.11.2023, II ZR 69/22 (BGHZ 239, 37), procedural history and citation record: https://dejure.org/2023,34622
• GmbHG Section 15: https://www.gesetze-im-internet.de/gmbhg/__15.html
• GmbHG Section 55: https://www.gesetze-im-internet.de/gmbhg/__55.html
• Singapore Academy of Law and SVCA, Venture Capital Investment Model Agreements (VIMA), including the CARE (updated 2025): https://www.svca.org.sg/model-legal-documents
• 100X.VC, "iSAFE": https://www.100x.vc/isafe