SAFE vs convertible note vs BSA-AIR: startup instruments explained

A SAFE, a convertible note and a BSA-AIR all do the same job – they let an investor put money in now and fix the price later – but they do it with different legal machinery: the SAFE is a simple contract with no interest or maturity date, the convertible note is debt that accrues interest and can come due, and the BSA-AIR is France’s warrant-based equivalent, built to make the same deal work under French law.

We tend to treat the choice of instrument as paperwork. It is not. The instrument you sign at pre-seed determines who owns what when your seed round prices the company, and the failure modes – surprise dilution, a note maturing at the worst moment, incompatible documents stacking up – are all avoidable if you understand the machinery before signing. Below, I take each one apart, run one worked example, and give you the questions to ask before anything gets signed.

Why pre-priced instruments exist at all

Why not just price the company and be done with it? Because pricing a company with no revenue and a six-week-old product is guesswork, and a priced equity round makes that guesswork expensive: negotiating a valuation, drafting shareholder agreements, and paying lawyers on both sides can consume a painful share of a small raise and weeks of your time. Pre-priced (or “deferred pricing”) instruments solve this by postponing the valuation question to the next priced round, when there is more evidence and a lead investor to negotiate properly. The investor accepts uncertainty about their exact ownership; in exchange they get a cap or a discount that rewards them for coming in early. That is the whole trade. Everything else is implementation detail – but the details differ enough to matter.

The three instruments

One deal, three legal costumes – which is very much a European story: in the US the same trade needs one document, while here it needs one per legal tradition.

SAFE: the simple contract

The SAFE (Simple Agreement for Future Equity), popularised by Y Combinator, is a short contract: money now, shares at the next priced round, conversion terms set by a valuation cap, a discount, or both. It is not debt – there is no interest, no maturity date, and no repayment obligation. If the company never raises a priced round and never sells, the SAFE can simply sit there. For you as a founder this is the gentlest instrument; for investors it is an act of trust, which is why some European investors still resist it.

Convertible note: debt with a conversion feature

A convertible note is a loan that converts into equity at the next round, usually with the same cap-and-discount mechanics as a SAFE – plus two features that change the risk: interest (which accrues and typically converts into extra shares) and a maturity date. The maturity date is the part we underestimate. If the next round has not happened when the note comes due, the investor can in principle demand repayment from a company that has no money – in practice this usually ends in an extension or a forced conversion, but “usually” is doing real work in that sentence, and the negotiation happens at the moment you have least leverage over your own company’s fate.

BSA-AIR: the French answer

The BSA-AIR (bon de souscription d’actions – accord d’investissement rapide) exists because the US-style SAFE does not map cleanly onto French corporate law. Mechanically it is a warrant: the investor pays now for the right to subscribe to shares later, with the subscription price set by the next round, again shaped by a cap and a floor or discount. Economically it behaves like a SAFE – no interest, no repayment – and it has become the standard fast instrument for French pre-seeds. If you are raising in France with French investors, the BSA-AIR is usually the path of least resistance; if your round mixes French and international investors, expect a conversation about which document everyone can live with.

	SAFE	Convertible note	BSA-AIR
Legal nature	Contract for future equity	Debt (a loan)	Warrant (subscription right)
Interest	None	Yes, accrues until conversion	None
Maturity date	None	Yes – repayment risk if no round	Usually a long-stop conversion mechanism, not repayment
Pricing terms	Cap and/or discount	Cap and/or discount, plus interest	Cap and floor/discount
Home ground	US, UK, international rounds	Everywhere debt-minded investors exist	France

Caps and discounts: one worked example

The two pricing levers work the same way in all three instruments. A valuation cap sets the maximum valuation at which the investment converts; a discount gives the investor a percentage off the next round’s share price. Where both exist, the investor converts at whichever is better for them.

An illustration with invented, deliberately clean numbers: an angel puts €200k into your company on a SAFE with a €4M valuation cap and a 20% discount. A year later you raise a seed round priced at €8M pre-money.

• Via the discount, the SAFE would convert as though the company were worth €8M less 20% – €6.4M.
• Via the cap, it converts as though the company were worth €4M – half the actual round price.
• The cap wins (it is lower), so the angel’s €200k converts at the €4M valuation and buys roughly 5% of the pre-round company – about twice the stake the same money would buy at the seed price.

Nothing about this is a trick; it is the early-risk reward working as designed. The lesson is that the cap, not the headline “we didn’t set a valuation”, is your real valuation negotiation. A low cap is a low price for your company, whatever the document is called.

The stacking trap

The damage rarely comes from one instrument. It comes from stacking: a €150k SAFE at a €2M cap, then €300k at €3.5M, then a note at €5M with 8% interest, each signed in isolation over eighteen months. None of them shows up on the cap table as shares – until the seed round prices, everything converts at once, and you discover you have sold 30% of the company before the round itself takes its 15-25%. Remember: every instrument you sign should be entered into a conversion model (any spreadsheet will do) showing what the cap table looks like after the next round converts everything. If you have never run that model, do it before your next signature – and read our startup dilution guide for the full mechanics, including option pools, which compound the same way.

Which geographies favour which

As a practical matter: SAFEs dominate US-connected rounds and are now common currency in the UK and much of Europe for international syndicates; convertible notes persist where investors want the downside protections of debt or where local practice grew up around loan agreements – including parts of the Nordics, DACH and Southern Europe; and the BSA-AIR is the default fast instrument in France. Germany deserves a caveat: notarisation requirements and local corporate law mean “just sign a SAFE” is rarely just anything – get local counsel before promising an instrument to investors. The general rule: the best instrument is the one your target investors already know, because educating an investor about paperwork is friction your round does not need.

Questions to ask before signing

• What does my cap table look like when this converts? Run the model with the next round at three different valuations. If you cannot answer this, do not sign.
• Cap, discount, or both – and does the investor take the better of the two? (They usually do; know it going in.)
• Is there a maturity date, and what exactly happens at it? For notes: can the investor demand cash, or does it auto-convert? At what price?
• What triggers conversion? Priced round only, or also an acquisition, and at what multiple? Most modern instruments give the investor a return floor on an early sale – know what it is.
• Is there a most-favoured-nation clause? An MFN lets earlier investors adopt better terms you give later ones – reasonable, but it means your worst terms become everyone’s terms.
• Pro-rata rights? Fine to grant, but track them: promised pro-ratas across many small investors can crowd your seed round.

I am not going to pretend any of this is thrilling. But the goal was never to master financing paperwork for its own sake – it is to arrive at your seed round owning enough of your company to keep building it for a decade. Twenty minutes with a spreadsheet buys you that. Run the model before you sign!

Frequently asked questions

Is a SAFE always better for founders than a convertible note?

Mechanically yes – no interest, no maturity, no repayment scenario. But an instrument your investors refuse to sign closes no round. If the money on the table wants a note, a note with a long maturity and automatic conversion at maturity is a perfectly livable compromise.

What is a normal valuation cap?

There is no table to look it up in – the cap is your valuation negotiation in disguise. Anchor it to what your next round is plausibly worth and to the rule of thumb that a round costs 15-25% of post-money; a cap that implies far more dilution than that on conversion is a low price, not a formality.

Can I mix instruments in one round?

You can – a French-international round might run BSA-AIRs and SAFEs side by side. Keep the economic terms (cap, discount) identical across them and model the combined conversion, otherwise you are running two secret rounds at different prices.

Do these instruments work for a round of any size?

They shine for small, fast rounds. Once a round is large enough that its conversion would hand over a big slice of the company anyway, the pricing ambiguity stops being worth it and a priced round with a proper negotiation serves you better – that is a common pattern at seed and near-universal by Series A.

Keep going

Instruments are one decision inside a larger process: see how to raise a pre-seed round in Europe for the rest of it, and startup dilution for what conversion does to your cap table. When you graduate to a priced round, our term sheet guide picks up where this leaves off. For the fundamentals, start at what is a startup, and for the wider financing landscape browse our funding hub.