You need money. You’ve got three main ways to get it: a priced round, a SAFE, or a convertible note. Each one answers a different problem and works best in different situations. The short version: SAFEs are almost always better for seed stage. Convertible notes work when you need speed. Priced rounds only make sense when you’ve got real traction and real investors.
Let’s unpack what each one actually does and when to use them.
Priced Round: When You Know What You’re Worth
A priced round is straightforward. You set a valuation. Investors buy stock. That’s it.
You and your investors agree that your company is worth, say, $5 million. An investor puts in $500K and gets 10% of the company. They own equity immediately. They’re shareholders. They get all the shareholder rights: board seat, information rights, liquidation preferences, the whole stack.
When This Actually Works
Priced rounds make sense when you have real proof points. You’ve got months of paying customers. You’ve got growth metrics that investors can underwrite. You’ve got enough traction that multiple investors want a piece and are willing to negotiate on valuation.
Think: B2B SaaS at $50K MRR with strong cohort retention. Marketplace with clear unit economics. Consumer app with millions of downloads. This is where priced rounds happen naturally because VCs can model your business and assign a number.
They also make sense late stage. Series A and beyond, you’re doing priced rounds. Your earlier investors already own preferred stock. You’re raising bigger checks. The legal and financial complexity is worth it.
Pros
You know exactly how much equity you’re giving up. No surprises at conversion. Your cap table is clean from day one. If you hit Series A quickly, your existing investors already have preferences in place, which actually makes that round faster to close.
Investors like clarity too. They know what they own. The economics are baked in from the start.
Cons
They take time. Attorneys. Due diligence. You’re probably negotiating valuation for three months while you could be building. If you’re wrong about your valuation, you’ve locked in a number that’ll haunt your cap table for years.
Priced rounds also signal something: you’ve got optionality. You’ve got investors competing for your deal. If you have to do a priced round and you’re struggling to get people excited, you’ve telegraphed weakness.
They’re expensive to do. Legal fees run $15K to $30K+ for a proper seed round. That matters when you’re burning $50K a month.
SAFE: The Startup Standard at Seed
SAFE stands for Simple Agreement for Future Equity. It’s not a stock. It’s not a debt. It’s a promise that your investor will get equity later, once you actually raise a priced round or hit certain milestones.
You take $500K on a SAFE. You promise the investor that when you do your Series A at, say, $10 million valuation, they’ll convert to stock at a discount. Maybe 20% off. Maybe they get a cap. They don’t own anything yet. But they will.
When to Use This
SAFEs are the default for seed stage. Y Combinator pushed them hard and they’ve got the documents freely available, so every early investor expects them now.
You’re pre-product or just launching. Your runway is short. You need to close funding in six weeks, not six months. SAFE is your answer.
You’re raising from angels who get it. Friends and family. Other founders. These people understand that valuation is meaningless at seed and just want fair terms. SAFEs are fair terms.
You’re planning a Series A in 12 to 24 months. The SAFE was built for this. Investors convert when you’ve got the metrics that justify a real valuation.
Pros
Close in weeks instead of months. The legal setup is simple. $1,500 in attorney fees instead of $20K. Your investors understand them. There’s no board seat fights or information rights negotiations because the SAFE doesn’t give those things yet.
You keep control of your cap table longer. No investors have liquidation preferences that tank your upside. No preferential voting rights. Nothing. They’re just waiting for their conversion.
For investors, SAFEs are clean too. They know the terms won’t change. Y Combinator standardized them so there’s no surprise negotiation. And they convert automatically when the event happens.
If your Series A takes longer than expected, SAFEs don’t expire. They just sit there waiting.
Cons
SAFE investors don’t own anything until conversion. This sounds like a con for them, but it’s a con for you too. They have no governance rights. No say in the company. That sounds good until you realize they also have no incentive to help you.
SAFEs can get weird in a down market. If your Series A is at a lower valuation than everyone expected, SAFE investors might get a bigger chunk of your company than anticipated. The caps and discount rates that seemed generous in good times look punishing when growth slows.
If you run out of money before Series A, you’ve got SAFE investors who own a claim on future equity that may not exist. They can sometimes push for a priced round just to get clarity on what they actually own.
Convertible Note: For Speed and Optionality
A convertible note is a loan that acts like equity. You borrow $500K. It sits on your balance sheet as debt. When you hit a conversion event, that debt becomes stock.
The investor gets interest while they wait. They also get a cap on valuation and usually a discount. So if the note had a $10 million cap and a 20% discount, and your Series A is at $15 million, they convert at the capped $10 million with the 20% discount applied.
When to Use This
You need momentum. You’re closing checks from multiple sources on different timelines. One investor wants a SAFE. Another wants a convertible note. Your employee option pool is underwater. A convertible note gives you flexibility to close checks fast without hunting for someone willing to do a SAFE.
You’re in the gray zone between seed and Series A. You’ve got traction but you’re not ready for a full priced round yet. You need another $1 or $2 million to de-risk the company. A convertible note is faster than a priced round and more flexible than a SAFE.
You have investors who want downside protection. Convertible notes have maturity dates and interest rates. If your Series A takes 24 months instead of 18, SAFE investors have no guarantee of anything. Convertible note investors get paid interest and have a maturity date to force conversion or repayment.
Pros
Faster than a priced round. Less formal than a stock purchase agreement. Your lawyer can crank them out in a week or two. The terms are familiar. Most convertible note templates are based on the Paul Graham essay on fundraising that explained this back when it was clever.
For investors, the interest rate and maturity give them protection. If you implode, they’re creditors before you’re giving equity to new Series A investors.
You can take money from different sources on different terms and use convertible notes to standardize everything. Bridge financing. Friends and family. Angel syndicates. They all can come in on convertible notes.
Cons
Debt on your balance sheet matters. If you’re raising from serious institutional VCs, they’ll want to clear the convertible notes before they lead Series A. This means extra negotiation and sometimes tension about valuation caps and discounts.
The interest accrues. If you don’t convert for three years, the note grows. It becomes increasingly unfavorable to your new investors who suddenly owe more than they expected.
Maturity dates create weird incentives. If your note matures in 24 months and you’re not ready to raise Series A, you’re forced to either convert at unfavorable terms, ask for an extension, or repay the loan. Most startups don’t have cash to repay, so you’ll take the bad conversion.
Investors have to understand convertible notes to invest. That rules out some founders and friends. It’s more complicated than a SAFE. People get confused about whether the interest matters. Whether they own equity. Whether they’re creditors or shareholders.
SAFE vs Convertible Note: The Real Comparison
These two are in the same weight class. You’re choosing between them more often than choosing between them and a priced round.
SAFE if you want simplicity and your investors are sophisticated enough to get it. Convertible note if you want flexibility and you have investors who need downside protection.
SAFE if you’re closing your seed round with a lead investor and a few angels. Convertible note if you’re doing a rolling close and different investors want different terms.
SAFE if your Series A is probably 18 months away and you just need to bridge the gap. Convertible note if you’re building for 24-36 months before you’re ready to raise.
In practice, most founders should do SAFEs. They’re simpler. They’re standard. Your investors expect them. Unless you’ve got a specific reason to use convertible notes, use SAFEs.
When the Priced Round Is Actually Right
Don’t do a priced round unless you have one of these situations.
You’ve got actual revenue. $50K MRR and growing month over month. You’ve got paying customers asking you to scale. VCs can actually model what you’re building.
You’ve got multiple investors competing for your deal. You’re not begging for a priced round. You’re choosing between VCs because you’ve got options.
You’ve already raised a seed round and you’re doing Series A or beyond. By that point, priced rounds are standard and expected.
You’ve got a specific reason that requires clarity on valuation and governance. Maybe you’re splitting founding equity with someone new. Maybe you need board structure for investor confidence. These are real reasons, but they’re tactical, not strategic.
Otherwise, save the legal fees and use a SAFE.
The Cap Table Implication
This matters more than founders think. A priced round locks in valuation. That becomes your seed valuation on your cap table forever. If you raise at $4 million pre for $500K, someone will calculate your SAFE cap at that number and your early investors will expect to convert at $4 million.
SAFEs and convertible notes stay flexible. You can raise your Series A at $20 million and the early SAFE investors convert at terms based on that valuation, not on a made-up seed number.
This compounds. Your early cap table becomes your later cap table. If you screw up the math at seed, you’re carrying that forward through Series A and B.
Speed to Close
SAFE: 2 to 4 weeks if everyone agrees. Convertible note: 3 to 6 weeks. Priced round: 8 to 16 weeks.
Speed matters. Every month you’re not closed is a month you’re not spending the money. Spend your time building. Use the instrument that closes fastest unless you have a specific reason not to.
The Syndicate’s Take
If you’re raising seed stage money, do a SAFE. They’re faster. They’re standard. Your investors understand them. You maintain control of your cap table. Legal costs are minimal. When you hit Series A and your metrics are real, you’ll convert at a number that makes sense.
If you’re in a weird middle stage where you’re doing rolling closes and different investors want different terms, use convertible notes. But be honest with yourself about why you’re using them. If the real answer is “my lead investor insisted,” that’s fine. If the answer is “I don’t understand SAFEs,” fix that instead.
If you’re raising a priced round, you’ve got traction. You’ve got multiple investors competing for your deal. You’ve got revenue or a clear path to revenue. You’re making a statement about the business maturity. Make sure that statement is true.
Don’t overthink this. SAFEs are almost always the right call for seed stage. Move fast. Raise money. Build something that works. The difference between a SAFE at a $5 million cap and a SAFE at a $6 million cap doesn’t matter if your Series A is at $50 million.
Start here: Deep dive on SAFE notes. Then read about how to think about seed round valuation. If you’re raising, you also need to know how long this actually takes. And once you close, understand what comes next in the process.
You’ve got this. Pick the right instrument and get back to building.