Why convertible notes are safer than SAFEs

José Ancer
Contributor

José Ancer is an Emerging Companies partner at Egan Nelson LLP, a top-tier boutique law firm delivering lean, world-class legal counsel to startups underserved by traditional firms.

As the saying goes, where you stand on an issue often rests on where you sit. Translated into startup law and finance, your views on how to approach fundraising are often heavily influenced by where your company and your investors are located. As a startup lawyer at Egan Nelson LLP (E/N), a leading boutique firm focused on tech markets outside of Silicon Valley — like Austin, Seattle, NYC, Denver, etc. — that’s the perspective I bring to this post. 

At a very high level, the three most common financing structures for startup seed rounds across the country are (i) equity, (ii) convertible notes and (iii) SAFEs. Others have come and gone, but never really achieved much traction. As to which one is appropriate for your company’s early funding, there’s no universal answer. It depends heavily on the context; not just of what the company’s own priorities and leverage are, but also the expectations and norms of the investors you plan to approach.

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