• Clarity on equity conversion: One of the most valuable benefits is clarity of how much equity is being issued. In many convertible debt notes, the conversion price and amount can be opaque, especially if an open round of funding is involved. Unclear paperwork causes the following issues:
1. Confusion over whether the conversion is pre- or post-money of the new raise.
2. If there is an open round and your valuation is postmoney, you technically can’t convert until the round is closed. If you have straggling investors, your conversion is delayed. This causes uncertainty for you, the startup, and existing and new investors.
• Ease of entry and startup’s comfort: If you are a seed/early stage investor, a SAFE note is an easy way to invest in a company post the initial raise (e.g., friends and family) without the paperwork and effort of a convertible note. Also, convertible notes usually come with obligations that might hamper future investment from other parties (e.g., interest payments, investor subordination [debt gets paid before equity], etc.).