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Convertible Notes, SAFE Notes, and Revenue-Based Financing Explained (In Simple Language)
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.
Dave Chase is a Director at Amplēo. He is currently taking a sabbatical to move with his family to Chicago for a service opportunity. This will take him away from Amplēo for three years. He intends to return to Amplēo at the end of this assignment in July 2025.
Before becoming a Partner at Amplēo in 2011, Dave spent 9 years in various financial strategy roles such as divisional CFO at Honeywell International Inc in their Phoenix and New York offices. In 2007, Dave became the CFO, and ultimately the Consumer Division Executive VP, for Cricut, a large private equity-owned company in consumer products manufacturing, distributing, and retailing. Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $500 million. After a successful career, Dave has used his broad experience in global finance and strategy to assist Amplēo clients. Dave is active in the entrepreneurial and small business mentoring community in Utah and is a frequent speaker on finance and entrepreneurship.
Fun Facts/Hobbies
- Wakeboarding
- Snowboarding
- Ski-mountaineering
- Hiking
- Passion for humanitarian work
Education/Certificates
- MBA from Brigham Young University
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