You Need to Be Thrilled With Early Employees
June 25, 2024
You need to be absolutely thrilled with your first employees. If you’re not overwhelmingly excited about the performance of one of your first hires, you need to let them go.
Today we’re talking about the differences between convertible notes and SAFEs. Although SAFEs are the common standard here in Silicon Valley, I do see plenty of convertible notes if companies are fundraising elsewhere.
Here are the 3 key differences, and why I always suggest using a SAFE, if the company is based in the USA.
The SAFE is a standard template most investors know well, downloadable from the Y-Combinator website. You agree on terms, fill in the blanks and you’re done — no legal costs.
Regardless of what happens with the company, a SAFE means the investor cannot force repayment. This prevents most bad behavior.
Notes must be paid back or converted within 2 years and accrue equity-based interest for the investor. That means the company must either convert the note via a priced round, pay back the loan, or extend the note. I’ve seen note renegotiations become a big distraction and SAFEs avoid this problem.
Best of luck out there.
