Convertible note

A convertible note is legally a debt instrument: the company owes the holder the principal plus interest, with a maturity date, until it converts into equity (typically at the next priced round) or is repaid. Structurally it converts almost identically to a SAFE — cap, discount, or round price, whichever is more favorable to the holder — with one addition: interest accrues on the principal for as long as the note is outstanding, and that larger balance is what actually converts.

Why interest changes the math

Because simple interest compounds the principal before the cap/discount comparison happens, a note that sits outstanding for 18 months at an 8% rate converts a meaningfully larger dollar amount than its face value — and therefore more shares — than an equivalent SAFE with no interest term. Founders are sometimes surprised that a $250,000 note 'costs' more in shares than a $250,000 SAFE with the same cap, purely because of accrued interest.

Notes vs. SAFEs today

SAFEs largely displaced convertible notes for US seed rounds because they're simpler (no maturity date, no interest, no default risk to negotiate around) and standardized (YC's templates are widely accepted with minimal legal review). Notes still appear in bridge financings, some non-US jurisdictions where SAFEs aren't standard instruments, and situations where investors specifically want debt-like downside protection.

Maturity and what happens if there's no round

A SAFE has no maturity date — it simply waits for a triggering event (or converts at dissolution/acquisition on defined terms). A note has one, and if the company hasn't raised a priced round by maturity, the note technically comes due, which can force a renegotiation, an extension, or in the worst case, real repayment pressure on a cash-constrained startup.