SAFE vs Convertible Note vs Priced Round: Which Should You Use?

A SAFE and a convertible note both postpone the price of your shares until the next round, while a priced round sets it now. A note is debt with interest and a maturity date; a post-money SAFE has neither. In Q2 2026, 93% of pre-seed rounds on Carta’s US-heavy platform were SAFEs. In Europe, local equivalents and company law apply.

Data as of 18 October 2026. Every figure is dated where it appears.

SAFEs (simple agreements for future equity) and convertible notes are both convertible financing: the investor pays now and receives shares at the next priced round, usually at a price limited by a valuation cap or reduced by a discount. In a priced equity round, the company and the investor agree a pre-money valuation, and new shares are issued at that price when the money arrives.

Convertible debt vs equity: the three options at a glance

The ranking, ownership and typical-use rows follow Y Combinator’s comparison of the three instruments, which calls the SAFE “the modern default” and the note “legacy / specific use cases” (Y Combinator). The European row is explained in the section on raising in Europe below.

How common each one is depends on whose deals you count. On Carta, 93% of pre-seed rounds in Q2 2026 were SAFEs (95% by capital raised), 91% of those SAFEs were post-money, and convertible notes were “a small fraction” of pre-seed activity (Carta). In the 2025 deals handled by Canadian law firm Osler, notes were far more common: 48.2% of convertible securities by count and 68.3% by dollars (Osler Deal Points 2025). The samples measure different things. Carta counts pre-seed rounds only, while Osler’s figure blends all stages, and Osler found SAFEs mostly in early rounds and notes mostly as bridges to a later round.

Is a convertible note debt or equity?

The answer depends on whether a lawyer, an accountant or a tax adviser is asking.

Legal form

A convertible note is a loan until it converts. The holder is a creditor with interest and a maturity date, and ranks ahead of shareholders. A post-money SAFE is not a loan: it has no interest and no maturity, and YC describes it as “junior to debt and on par with preferred stock” (Y Combinator).

Accounting

A convertible is not automatically equity on the balance sheet. Under IFRS, IAS 32 treats a convertible note as two components, a liability and a conversion feature, and the conversion feature can be equity only if it exchanges a fixed amount of cash for a fixed number of shares, the “fixed for fixed” test. BDO notes that the conversion features in many convertible notes meet the definition of a derivative, and a feature that fails the test is accounted for as a derivative liability (BDO, IFRS in Practice: Convertible Notes, June 2026). Under US GAAP, Grant Thornton says deciding whether a SAFE is a liability or equity means working through ASC 480 or ASC 815-40 and takes judgment (Grant Thornton, February 2024). Ask your accountant before you assume either instrument sits in equity.

Tax

YC says the post-money SAFE is written to be treated as equity, which matters for US benefits such as Qualified Small Business Stock, and still tells founders to check with a tax adviser (Y Combinator). Outside the US, the answer depends on the country and the contract.

For a founder, the practical answer to the convertible note vs equity question is this: a note is debt until it converts, a post-money SAFE is not debt but is not shares yet either, and only a priced round makes the investor a shareholder on day one.

SAFE: when it fits, and what to watch

A SAFE fits most first cheques. It is one standard document with no interest, and with a post-money cap each investor’s stake is the investment divided by the cap. Speed and low legal cost help explain why it dominates US pre-seed.

Two things catch founders out. The first is that post-money caps add up. In YC’s example, five $100K SAFEs at a $5M cap sell 10% of the company, not 2% (Y Combinator). Each new SAFE dilutes the founders while earlier SAFE holders keep their stake, so update your cap table before you sign the next one. Our pre-money vs post-money guide works through two stacked SAFEs and a seed round share by share.

The second is that a SAFE does not let you skip the valuation conversation. The cap sets the highest valuation at which the investor converts, which makes it a valuation in all but name. For typical 2026 caps and discounts and how to set yours, see SAFE valuation caps and discounts; for the mechanics, see how SAFE notes convert.

Convertible note: when it still makes sense

A note still makes sense in three cases, the same ones YC lists (Y Combinator): a bridge between priced rounds, an investor who specifically wants debt with interest and a repayment date, and a company that has already issued notes and wants the next cheque on the same terms.

The price is interest and a deadline. Interest accrues and normally converts into extra shares, and if the next round has not closed by the maturity date the holder can demand repayment. A young company rarely has that cash, so the two sides renegotiate, with the investor holding the stronger hand. In Osler’s 2025 sample, the median note carried 7.0% interest and a 24-month term (Osler Deal Points 2025).

Do not mix a note into a SAFE round. Debt ranks ahead of equity, so SAFE holders automatically sit behind the noteholder (Y Combinator). For discount, cap, interest and maturity in detail, see our guide to convertible note terms.

Priced equity round: what you get for the extra work

Compared with a SAFE, a priced equity round takes more time and legal work, and in return it fixes ownership. The investor’s percentage is set on the day the round closes, and nothing converts later at a price nobody can predict today.

The usual steps are a term sheet (pre-money valuation, round size, option pool, investor rights), due diligence by the lead investor, new articles of association creating a preferred share class, and a shareholders’ agreement on board seats, information rights, pre-emption and transfers. In many European countries, a notary then issues the new shares.

The investor typically receives preferred shares with a liquidation preference, protective provisions and often a board seat, and those terms can matter as much as the price. Liquidation preferences explained shows what a preference does to each payout at exit. We found no neutral, dated survey of legal fees for a priced seed round, so we don’t quote one; ask two law firms for a fixed-fee quote.

The same €750K raised three ways

The founders hold 10,000,000 shares and raise €750K. Later the company raises €2M in a priced round, either at an €8M pre-money valuation (things went well) or at €4M (they did not).

• Priced round: €750K at a €4.25M pre-money valuation, so €5M post-money. The investor buys 1,764,706 shares at €0.425 and owns 15%.
• Post-money SAFE: €750K at a €5M post-money cap with no discount. The holder has bought 15% until the next round.
• Convertible note: €750K at 8% simple interest for 18 months, with a 20% discount and a €4.25M pre-money cap. After 18 months, €840K of principal and interest converts at the cap price or the discounted round price, whichever is lower. The pre-money cap is divided by the 10,000,000 shares that exist before the note converts, so the cap price is €0.425, the same as the priced round.

We assume the next round’s pre-money valuation includes the shares the SAFE or note converts into. This is the common convention, and it is the least favourable to founders, because the converting investor is paid out of the pre-money. There is no option pool and no anti-dilution clause.

Scenario 1: the next round is €2M at an €8M pre-money valuation

When the next round prices above the cap, the SAFE gives the same result as the priced round, because a €5M post-money cap and a €5M post-money valuation both sell 15%. The note costs the founders 1.2 points more, since its €90K of interest also converts at the cap price.

Scenario 2: the next round is €2M at a €4M pre-money valuation

Below the cap, the SAFE converts at the round price instead. The holder owns €750K ÷ €4M = 18.75% before the new money and 12.5% after it. In the priced route, the first investor’s 15% was already fixed and is diluted to 10% like everyone else’s stake. The note goes further: the discount and the interest give the holder 17.5%, and the founders fall below half.

A SAFE or a note protects the investor when the next round disappoints, while a priced round makes founders and investors share the disappointment. Preferred shares in a priced round can carry anti-dilution protection, which would narrow that gap; see down rounds and anti-dilution. For the dilution arithmetic itself, see Dilution 101.

SAFE vs priced round vs note: how to choose in five questions

Who is investing, and how much?

For a handful of angel cheques or an accelerator, a SAFE (or your country’s equivalent) is the usual choice. When one lead investor provides most of the round, expect them to ask for a priced round.

Does an investor want debt?

If an existing investor is bridging you to the next round and wants interest and creditor ranking, a note is the instrument that says so openly. Keep it out of a SAFE round.

How confident are you about the next round?

If you expect it at a higher valuation, a SAFE with a cap close to the pre-money you would accept costs about the same as a priced round, as scenario 1 shows. If the next round is uncertain, scenario 2 is what you are signing up for.

Does anyone need control terms now?

Board seats, information rights and vetoes come with a priced round. If nobody needs them yet, a SAFE saves the legal work.

Where is the company incorporated?

The YC SAFE is written for US companies. In most of Europe you adapt it or use the local instrument.

Whichever instrument you choose, you are agreeing a valuation or a cap, and that number decides how much of the company you sell. For what is normal at each stage, see how much equity to give investors per round.

Raising in Europe?

YC publishes SAFE forms for US companies and, outside the US, only for companies formed in Canada, the Cayman Islands and Singapore, telling them to “consult a lawyer licensed in the relevant country” (Y Combinator documents). There is no YC SAFE for a European company. Founders use these instead:

• United Kingdom: the advance subscription agreement (ASA). For SEIS advance assurance, HMRC expects an ASA to bear no interest, allow no refund, not be varied, and set a longstop date for issuing the shares, as a rule no more than 6 months away (HMRC VCM33025).
• Netherlands: the convertible loan agreement (CLA). Issuing shares in a BV requires a deed before a Dutch notary (Dutch Civil Code, art. 2:196), so conversion goes through a notary.
• Germany: the Wandeldarlehen, a convertible loan. Taking up new shares in a GmbH capital increase needs a notarised declaration (§ 55 GmbHG).
• France: the BSA AIR, a share warrant bought now that gives the investor a deferred entry into the company’s capital, usually at the next fundraising (Maddyness, March 2024).

The economics travel well: a cap, a discount, conversion at the next round. The formalities, tax treatment and investor protections do not. This article is general information, not legal or tax advice, so have a local lawyer review what you sign.

Whatever you pick, you need a valuation

A priced round needs a pre-money valuation, and a SAFE or a note needs a cap. In scenario 1, a €5M SAFE cap and a €5M post-money valuation produced the same cap table.

As a reference point, European pre-seed companies in Equidam’s H1 2026 data had a median valuation of $3.30M and a median capital requirement of $0.71M, an implied dilution of 17.7% (Startup Valuation Delta H1 2026). That is what a founder would sell by raising the median amount at the median valuation, and it describes plans, not closed deals. Each H1 2026 figure is the average of the Q1 and Q2 2026 medians, weighted by the number of valuations in each quarter.

Equidam estimates a valuation with five methods: the Scorecard and Checklist methods, the VC method, and two discounted cash flow methods, one with long-term growth and one with exit multiples. The weights change with the company’s stage, and the DCF methods apply survival rates and an illiquidity discount (five startup valuation methods). The result is an estimate under stated assumptions, which gives you specific points to defend when you set a cap or agree a pre-money.

FAQ

Is a SAFE better than a convertible note?

For most first cheques in the US, yes; in Europe the local equivalent plays that role. A post-money SAFE has no interest, no maturity date and one standard document. A note fits better for a bridge from investors who want debt. In Q2 2026, notes were “a small fraction” of pre-seed rounds on Carta.

When should a startup do a priced round instead of a SAFE?

When a lead investor provides most of the round and wants a fixed price, preferred shares and control terms, or when the round is big enough that legal costs are a small share of it. A priced round also suits founders who want ownership fixed now rather than set by the next round’s price.

Is convertible debt considered equity on the balance sheet?

Not automatically. Under IFRS, IAS 32 splits a convertible note into a liability and a conversion feature, and the feature is equity only if it passes the “fixed for fixed” test (BDO). Under US GAAP, classifying a SAFE takes judgment under ASC 480 or ASC 815-40. Ask your accountant.

Can I mix SAFEs and convertible notes in the same round?

You can, but it is usually a bad idea. A note is debt and ranks ahead of SAFEs, so SAFE holders sit behind the noteholder if the company is sold or wound down before conversion (Y Combinator). The two also convert differently, which makes the cap table harder to predict.

Do European startups use SAFEs?

Some use adapted SAFEs, but YC publishes no SAFE for European companies. UK founders often use an advance subscription agreement, Dutch and German founders a convertible loan, and French founders the BSA AIR. Share issues in a Dutch BV or a German GmbH involve a notary.

Does a SAFE dilute founders more than a priced round?

Not when the next round prices above the cap: in our example, a €5M post-money cap and a €5M post-money valuation both leave founders with 68%. When the next round prices below the cap, the SAFE converts at the lower price and founders keep less, 54.2% against 56.7% in our example.