Most early-stage companies raise their first outside money with one of three instruments. Each one trades off speed, cost, and control differently, and the right choice depends on how much you are raising, from whom, and what comes next.
The three options at a glance
| SAFE | Convertible note | Priced round | |
|---|---|---|---|
| What it is | A right to future equity; not debt | Debt that converts to equity | Sale of shares (usually preferred stock) at a set price |
| Valuation | Deferred; usually a valuation cap and/or discount | Deferred; usually a cap and/or discount | Set now |
| Interest & maturity | None | Yes — interest accrues and the note has a maturity date | Not applicable |
| Investor rights | Minimal, often a side letter | Minimal until conversion | Board seats, protective provisions, information rights, and more |
| Cost & speed | Fastest and cheapest | Fast; slightly more negotiation | Slowest and most expensive |
SAFEs
The Simple Agreement for Future Equity has become the default for pre-seed and many seed rounds. It is short, standardized, and lets you close investors one at a time. The catch is that SAFE dilution is easy to underestimate. Most SAFEs today are “post-money,” meaning each investor’s percentage is fixed at conversion — so stacking several SAFEs dilutes the founders, not the earlier SAFE holders. Model your cap table on a fully converted basis before you sign the next one.
Convertible notes
Notes work like SAFEs economically but are debt. Interest adds to the conversion amount, and the maturity date gives investors leverage if a priced round hasn’t happened in time. Some investors — especially angels used to notes, and some strategic or institutional investors — still prefer them. If you use a note, pay attention to the maturity date, what happens at maturity, and whether conversion is automatic.
Priced rounds
A priced round sets your valuation and creates a new class of preferred stock with negotiated rights. It costs more and takes longer, but it gives everyone clarity — and for larger raises or a lead investor taking a board seat, it is usually expected. The key terms to negotiate are less about price than about structure: liquidation preference, option pool sizing, board composition, and protective provisions.
How to choose
- Small, fast, many investors: a SAFE is usually the right tool.
- Investor asks for debt protections, or you need a bridge: a convertible note may fit.
- A lead investor, a larger check, or a board seat: plan for a priced round.
- Already holding several SAFEs or notes: model conversion before raising more — the next round will reveal the full dilution.
Southshore Partners represents founders and investors in financings from first checks through Series D. Talk to us about your raise or see representative matters.
Jeff McCourt has represented companies and investors in venture financings from seed through Series C, and raised capital as a founder and CEO.
This article is for general information only and is not legal advice. Every financing is different; consult counsel about your specific situation.