SAFEs and convertible notes both allow a startup to take investment now and agree the share price later, usually at the next priced round. Founders often treat them as the same thing, and in my experience the differences only become obvious when something goes wrong. A convertible note is a loan, with interest and a date on which it falls due, whereas a standard SAFE is not debt at all. It has no interest or maturity date, and it only converts or pays out on the events it describes.
Which one suits a company depends on how confident the founders are about the next round and what would happen if it took longer than planned. For that reason, the repayment and consent terms should be read as carefully as the cap and discount, and the actual documents being offered should be compared, because negotiated versions often differ a great deal from the standard forms.
What the company owes before conversion
A convertible note is debt. Interest builds up, usually at somewhere between 5% and 10% a year, and the note becomes repayable at maturity, which is often 18 to 24 months after signing. Notes may also contain covenants and default terms that restrict what the company can do in the meantime. If the intention is for the note to convert at maturity, it needs a price for that conversion and a clear process, and it should say what happens if the company wants to extend the maturity date and some holders refuse.
In Nigeria, interest paid on a note will generally attract withholding tax under the tax laws in force since January 2026, and the note should be stamped. Money from a foreign noteholder should come in through an authorised dealer bank with a Certificate of Capital Importation, so that repayment or the proceeds of conversion can later be sent out of the country.
A standard SAFE has none of these features, and the holder simply waits for one of the events the SAFE describes. Some negotiated SAFEs, however, add repayment rights or other debt‑like terms that change the position completely, so the signed version should be read together with any amendments and side letters to see what was actually agreed.
Security and ranking also matter for notes. A secured note ranks ahead of other creditors and can make later bank borrowing harder to obtain, and if a founder has also given a personal guarantee, the founder carries personal risk as well, which I discuss in before giving a personal guarantee.
What turns the money into shares
A note usually converts automatically on a qualified financing, which is a priced round above a minimum size, so it is important to check what counts towards that minimum and what happens in a smaller round. A SAFE converts on the equity financing defined in its own text, and the published YC form and a locally negotiated SAFE do not necessarily use the same trigger.
The conversion applies the cap or discount to the amount converting, including interest in the case of a note, and the documents should also say which share class the investor receives and what liquidation preference attaches to it. Because the investor converts at a lower price than new investors pay, giving them the same per‑share preference as the new money can give them more preference than they actually paid for, and many deals deal with this by creating a separate sub‑series of preferred shares.
The capitalisation definitions decide which options and convertibles count in the price calculation, so changing them changes the result even if the cap stays the same. I explain the pricing in understanding a SAFE valuation cap, and how later money is shared in how pre‑money and post‑money SAFEs affect ownership.
A late round or an early sale
If a note reaches maturity without a new round, the holders may be able to demand repayment or force conversion at a fixed price. A company that would not be able to repay should deal with that possibility before it accepts the maturity date, because a note that falls into default just as cash runs low gives the holders considerable power at the worst possible time.
With a SAFE, the questions are different. The founders should consider how long investors may have to wait without conversion and what information rights they have in the meantime, and they should check whether the SAFE includes any repayment or redemption terms, as well as what can end it without conversion.
If the company is sold before conversion, the liquidity terms apply, and holders usually receive the greater of their money back or what they would receive on conversion at the cap. On a dissolution or insolvency, a noteholder is a creditor, while a SAFE holder usually ranks behind creditors but ahead of ordinary shareholders. Each of these cases should be worked through under the signed terms, including a case where there is not enough money for everyone.
Rights beyond price
Information rights and pro rata rights are often contained in side letters, which should be kept with the main document, and the company should make sure it can meet the reporting obligations across all its holders. Any MFN clause should also be checked before later instruments are issued, because it can give earlier investors the benefit of better terms offered to someone else.
Many notes allow a majority of holders to approve amendments on behalf of everyone. It is worth finding out which notes count towards that majority and which changes need each holder's own consent, and before accepting a maturity date, the company should know whether extending it would need a majority or every individual noteholder.
The YC SAFE materials explain the standard US forms. For your own raise, however, it is the actual note or SAFE being offered, with its amendments and side letters, that sets the terms you are bound by.
Complete the investment for the right company
The documents should name the correct investing entity and the correct issuer, which matters particularly in a group with a foreign parent. The company needs board approval and any consents existing investors are entitled to give, and it should check the securities rules in each relevant country. In Nigeria, the Investments and Securities Act 2025 treats investment contracts as securities, so offering SAFEs or notes widely, or through an online platform, can bring in SEC rules, and the offer should be kept private until advice has been taken on that point.
The company should also carry out identity and source‑of‑funds checks on investors, confirm payment instructions through a contact it trusts, and check the amount received against each subscription. A SAFE that has been signed but not paid for is not yet an investment, so it should be recorded as unfunded until the money arrives.
Finally, the tax and accounting treatment should be confirmed, together with how the bank will record foreign money on the Certificate of Capital Importation. Each instrument should be entered in the company's register of outstanding convertibles, and the cap table model should be updated as the money comes in.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.