A convertible note is debt that intends to become equity. The investor lends money today; the principal, plus accrued interest, converts into shares when a qualified financing closes, usually defined as a priced equity round above a negotiated threshold. Conversion terms mirror a SAFE’s: a valuation cap, a discount on the round price, or both, with the investor converting at whichever price is lower. The conversion math is the same; the base differs. A note’s cap is conventionally pre-money, so, unlike a post-money SAFE, it does not lock the holder’s final ownership: other instruments converting at the same round dilute the note too. The $8,000,000 cap in the worked example is a pre-money cap.
Three features separate it from a SAFE, and all three protect the investor. It accrues interest, typically 5 to 8% and most often simple, which converts with the principal rather than being paid in cash. It sits on the balance sheet as a liability until conversion. And it has a maturity date: if no qualifying round has closed by then, the loan is due, and the realistic outcomes are an extension, a negotiated conversion, or a default no early-stage board wants to test.
Notes persist where SAFEs are awkward. Some investors want the seniority of debt in a liquidation; some jurisdictions handle loan instruments more cleanly than SAFE-style contracts (France, for instance, evolved its own BSA-AIR rather than adopt the SAFE). For the founder the practical reading is simple: a note is a SAFE plus a clock plus a coupon. Price the clock honestly against the technical roadmap before preferring one to the other.