Early investment comes in two basic forms: buying shares now at an agreed price (equity), or giving money now that turns into shares later (SAFE or convertible note).
Equity (a priced round)
Investors buy new shares at a price set by an agreed valuation. They become shareholders immediately. It's clear, but needs more legal work: a term sheet, a shareholders' agreement and changes in the business register.
SAFE
A SAFE (simple agreement for future equity) was created by Y Combinator. The investor pays now and receives shares at the next priced round. It has no interest and no repayment date. The main terms are a valuation cap (the maximum valuation at which it converts) and sometimes a discount.
Convertible note
A loan that converts into shares at the next round, usually with a cap and a discount. Unlike a SAFE, it has an interest rate and a maturity date. If no round happens by then, the investor can in theory ask for repayment.
Which to use
- SAFE: fast and cheap, common in the US and in many international startup ecosystems. Not every country's law recognises it, so local versions exist.
- Convertible note: familiar to many angels; local law may treat it as a loan.
- Equity: often expected in Europe and for larger amounts; gives clarity on ownership from day one.
Watch out for
- Stacking many SAFEs: add up how much of the company they'll own together after conversion.
- Pre-money vs post-money cap: the difference changes who carries the dilution.
- Side letters (pro rata rights, information rights): read them as carefully as the main document.
- Whether the instrument works under your country's company law.