Convertible Notes for Startups: A Safer Alternative Than the SAFE?

Learn more: breakingintowallstreet.com/ve...
This tutorial will explain Convertible Notes for startup financing, including the mechanics, dilution, and a full comparison to SAFE Notes.
Files & Resources:
breakingintowallstreet.com/kb...
Table of Contents:
0:00 Introduction
5:19 Part 1: Convertible Notes in a Seed Round
6:01 Part 2: Conversions in the Series A with an Options Pool
10:47 Dollars Invested Method
11:41 Part 3: Side-by-Side: Convertible Note vs. SAFE
12:35 Part 4: Should a Startup Use Either One of These?
13:32 Recap and Summary

[@financialmodeling]

Files & Resources:
breakingintowallstreet.com/kb/venture-capital/convertible-notes/
Table of Contents:
0:00 Introduction
5:19 Part 1: Convertible Notes in a Seed Round
6:01 Part 2: Conversions in the Series A with an Options Pool
10:47 Dollars Invested Method
11:41 Part 3: Side-by-Side: Convertible Note vs. SAFE
12:35 Part 4: Should a Startup Use Either One of These?
13:32 Recap and Summary

[@rodctenis]

It's important to consider transaction costs, SAFE are cheaper (although some law firms still charge expensive fees) thant convertible notes, and much cheaper than a traditional equity round. When startups rise small amounts legal expenses become relevant in deciding the investment vehicle.

[@financialmodeling]

I don't think SAFE Notes are that much cheaper than traditional equity rounds anymore if you use one of the many template/standardized agreements online. Yes, startups might still save money, but the disadvantages later on may not be worth it. There might be more savings if the priced equity round requires complex / drawn-out negotiation and the SAFE does not.

[@rodctenis]

@@financialmodeling I can tell you from experience, much cheaper, basically because the limited involvement of lawyers. Even using templates, for an equity round you will need lawyers involved substantially in the process as you are modifying your legal corporate structure, SAFE don't do that, not at the time of the issuance, the real total cost of SAFEs is basically postponed to the time of conversion. The advantage is that at conversion time, against a larger financing it is easier to absorb the cost of legal fees. In other words, probably the final cost is quite similar, but the difference is the financial position at which the company must afford them.