This article is for Irish startup founders raising their first seed round who need to choose between SAFEs and convertible notes.
If you're confused about which fundraising instrument to use, what the actual differences are, or which one investors will prefer, this guide breaks down how each works, when to use them, and what terms to expect in Ireland.
Key Takeaways
SAFEs have no interest, maturity date, or repayment obligation, while convertible notes accrue 2-8% interest and mature in 18-24 months.
Both instruments convert using valuation caps (typically €3-10 million) and discounts (typically 15-25%), with investors getting the better deal.
Choose SAFEs if your Series A timeline is uncertain or you're raising small amounts from multiple angels quickly.
Choose convertible notes if you're confident about raising Series A within 18-24 months or investors require debt protection.
SAFEs don't appear as debt on your balance sheet, avoiding inflated debt-to-equity ratios that affect future financing.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
What's the main difference between a SAFE and a convertible note?
The fundamental difference is that a SAFE is not debt while a convertible note is a debt instrument. SAFEs have no interest, no maturity date, and no repayment obligation, whereas convertible notes accrue interest (typically 2-8% annually), mature in 18-24 months, and must be repaid if they don't convert to equity.
Do I have to pay back a SAFE if my company doesn't raise a Series A?
No, SAFEs never require repayment regardless of whether you raise future funding. Unlike convertible notes, SAFEs have no maturity date and no repayment obligation, so they simply remain outstanding until a qualifying event triggers conversion or the company is acquired or wound down.
Will a SAFE show up as debt on my balance sheet?
No, SAFEs should not appear as liabilities on your balance sheet because they lack the essential characteristics of debt. Most companies account for SAFEs as equity instruments or as a separate line item in the equity section, which avoids inflating your debt-to-equity ratio.
How does a valuation cap work when my SAFE converts?
A valuation cap sets the maximum valuation at which your SAFE converts, protecting early investors if your company value increases significantly. For example, if you raise Series A at €10 million valuation but the SAFE has a €5 million cap, the SAFE investor converts as if the valuation were €5 million, giving them more equity.
Should I choose a SAFE or convertible note for my seed round?
Choose a SAFE if you want simplicity, have an uncertain timeline to Series A, or are raising small amounts from multiple angels. Choose a convertible note if you're confident about raising Series A within 18-24 months or if key investors strongly prefer debt instruments with downside protection.
When does a SAFE actually convert into equity?
SAFEs convert into shares when you raise a qualifying equity round (typically Series A) or upon certain trigger events like an acquisition. The conversion happens automatically based on the terms in the SAFE agreement, using either the valuation cap or discount rate, whichever is more favorable to the investor.
Are SAFEs legally enforceable in Ireland?
Yes, SAFEs are valid contracts under Irish contract law, though they have less established legal precedent in Irish courts than convertible notes since they originated in California. You should ensure your SAFEs are governed by Irish law and specify that Irish courts have jurisdiction to avoid conflicts of law issues.
What terms should I expect to negotiate on a SAFE?
The key negotiation points are the valuation cap and discount rate, which are similar to convertible note terms. Typical valuation caps range from €3-10 million for seed rounds, and discount rates typically fall between 15% and 25%, with 20% being most common.
Do investors prefer SAFEs or convertible notes?
Investor preferences vary: angel investors increasingly accept SAFEs for their simplicity, while institutional investors may prefer convertible notes for downside protection. US investors are generally very comfortable with SAFEs as they're standard in Silicon Valley, while European investors sometimes prefer convertible notes due to longer familiarity, though SAFE acceptance is growing rapidly.
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