Convertible Notes, SAFE Notes, and Revenue-Based Financing Explained (In Simple Language)
We frequently are asked about the merits of various methods of business funding. When CEOs are curious about non-equity capital, those discussions inevitably come around to the ideas of convertible notes, SAFE notes, and Revenue-based financing. And sometimes I get blank stares when walking through the concepts of conversion, discounts, caps, etc. I’ve even heard, “Ok Dave, whatever, I trust you”, which isn’t the best answer. We’d rather that entrepreneurs understand exactly what they’re getting into.
This article by TIMIA capital does a nice job explaining the pros and cons of these three types of capital – Convertible Notes, SAFE notes, and Revenue lending.
However, I think entrepreneurs that find themselves with circumstances that fit funding of this nature should also consider the other various types of venture lending which are growing in popularity. Fundera summarizes the pros and cons of venture debt here.
I can’t stress enough that, when looking at the various options for funding, you should find capable advisers who have experience with raising capital from these sources. Good advice, specific to your circumstances, can help you avoid significant challenges down the road.