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SAFEs vs. convertible notes NotesSAFEsValuation cap??Conversion discount??Maturity date??Accrues interest??1 more row ?
A convertible note is created through an agreement between a company and an investor whereby: the investor agrees to loan money to the company, and. the investor has the option to convert the loan into shares in the circumstances permitted by the convertible note agreement.
A promissory note is a form of debt that companies and individuals sometimes use, like loans, to raise money. The issuer, through the notes, promises to return the buyer's funds (principal) and to make fixed interest payments to the buyer in exchange for borrowing the money.
Convertible notes are promissory notes that serve an additional business purpose other than merely representing debt. Convertible notes include all of the terms of a vanilla promissory note, such as an interest rate and the pledge of underlying security (if applicable).
A term sheet is usually a non-binding agreement outlining the basic terms and conditions of the investment. It serves as a template for the convertible note for both parties.
The SAFE is legally a contract of the issuer, constituting an agreement to issue equity in the future at a purchase price paid in advance. It is not debt and, unlike a convertible promissory note, accrues no interest and has no maturity date.
A convertible note is a debt instrument often used by angel or seed investors looking to fund an early-stage startup that has not been valued explicitly. After more information becomes available to establish a reasonable value for the company, convertible note investors can convert the note into equity.