RE: What is the basic difference between a convertible note, a safe note, and a priced round (equity)?Default Asked on September 7, 2015 in Due Diligence.
That is a very good question. Below is a really quick overview on what each of them are.
A convertible note is effectively a loan to the startup that may pay annual interest (typically 6-8%) and/or provide a discount to buy in to a future round of equity (usually 10-20%)
A safe note is like a convertible note in that the investor buys not stock itself but the right to buy stock in an equity round when it occurs and can have a valuation cap, or be uncapped, just like a convertible note. But what the investor buys is not debt, but something more like a warrant.
A priced round (equity) provides a percentage ownership in the company in much the same way as investing in a public stock, but it’s a privately owned company.
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