# Fundraising agreements, from SAFE agreements to convertible notes > SAFE agreement and convertible note drafting for startups raising money. Term sheets, investor diligence and securities filings, at a flat fee quoted first. Page: https://arapackelaw.com/fundraising-agreements/ Title: SAFE Agreement and Convertible Note Lawyers | Rapacke Law Group Breadcrumb: [Home](https://arapackelaw.com/) / [Startup legal services](https://arapackelaw.com/startups/) / [Fundraising agreements](https://arapackelaw.com/fundraising-agreements/) SAFEs and convertible notes let you raise quickly and defer the valuation. We structure, draft and negotiate them with your next round in mind, and keep the raise inside securities law. - Flat fee, quoted before work begins - No hourly billing - IP diligence in the same firm ## For founders raising their first rounds. Compared with a priced equity round, SAFEs and notes close faster, adapt to different investors, cost less to paper and tie investors’ returns to your next round. - **Pre-seed founders** Friends, family and first angels, on terms that will not haunt the seed round. - **Seed-stage startups** Several SAFEs or notes, with caps and discounts you can model. - **Life sciences and deep tech** Longer timelines to a priced round, where note maturity and caps matter more. - **Founders facing diligence** Investors asking for your documents, cap table and proof that the company owns its IP. ## Raise now, without regretting the terms later. Every term in a SAFE or note changes how much of the company you own after the next round. We help you understand the numbers before you sign. ### What we draft and negotiate - **SAFEs** With a valuation cap, a discount or a most favored nation clause, plus side letters such as pro rata rights. - **Convertible notes** Interest, maturity, discount, cap, conversion triggers and what happens on an acquisition or dissolution. - **Term sheets and negotiation** Key deal points, market expectations and representation in talks with investors. - **Diligence and securities compliance** Document preparation, red flags, Regulation D exemptions and filings. ### Terms founders regret - **A cap that is too low** Giving away more of the company than the round justified. - **Stacked SAFEs nobody modeled** Dilution that only shows up when they all convert. - **A note that comes due** Maturity before a priced round, with repayment on the table. - **A raise outside securities law** Selling to the wrong investors, or advertising without the right exemption. Investors look hard at IP ownership. We check that the company owns what it is raising on, and fix gaps before diligence finds them. ## What is a SAFE agreement? A SAFE agreement, or simple agreement for future equity, is a contract in which an investor pays money now for the right to receive shares later, usually when the company raises a priced equity round. Y Combinator introduced it in 2013. A SAFE is not debt, so it carries no interest and no maturity date. ### Key terms in a SAFE - **Valuation cap.** The highest valuation at which the SAFE converts, which rewards investors for coming in early. - **Discount.** A percentage off the price new investors pay in the priced round. - **Most favored nation.** If you later issue SAFEs on better terms, this investor can take them too. - **Pro rata rights.** The right to invest in a later round to keep their ownership percentage, often in a side letter. - **Conversion and liquidity events.** What happens in a priced round, an acquisition or a dissolution before conversion. ### Pre-money or post-money SAFE Y Combinator’s post-money SAFE, introduced in 2018, fixes each investor’s ownership as a percentage of the company after all the SAFEs convert. That makes each investor’s stake easy to see, but the dilution from every additional SAFE falls on the founders. Model the cap table before you sign more than one. Before your first raise, read [how to write angel investor agreements that make investors say yes](https://arapackelaw.com/startups/angel-investor-agreements/) and [why patents are important to investors](https://arapackelaw.com/patents/why-patents-are-important-to-investors/). ## SAFE vs convertible note. Which should you use? Both defer the valuation to the next priced round. The difference is whether the investment is debt. *SAFE and convertible note compared* | | SAFE | Convertible note | | --- | --- | --- | | What it is | A right to future equity | A loan that converts into equity | | Interest | None | Yes, usually added to what converts | | Maturity date | None | Yes. The note can come due before a priced round | | Cap and discount | Common | Common | | On the balance sheet | Not debt | Debt until it converts | | Where it fits | Fast, simple early rounds | Investors who want creditor protection, or longer timelines | ## Term sheets, diligence and securities law. The agreement is only part of the raise. Three other pieces decide how smoothly it closes. ### Term sheets and negotiation We prepare term sheets that set out the key deal points, explain what is standard for your stage and where there is room to negotiate, and represent you in negotiations with investors, balancing what you need now against future rounds and an exit. ### Due diligence Investors will ask for your formation documents, cap table, material contracts and proof that the company owns its IP. We help organize and review those documents, address red flags before investors find them, advise on what to disclose, and work with your accountants and advisors so the picture is complete. ### Securities compliance A SAFE or a note is a security, so the raise needs an exemption from registration. Most startup rounds rely on Regulation D. Rule 506(b) bars general advertising and allows a limited number of non-accredited investors, while Rule 506(c) allows advertising if every investor is accredited and verified. A Form D is generally filed with the SEC within 15 days after the first sale, and many states require a notice filing too. Regulation Crowdfunding is another route for raising from the public through a registered platform. Before you raise, set up the company right on our [business formation](https://arapackelaw.com/business-formation-and-structure/) page, and protect the invention with a [patentability search](https://arapackelaw.com/patents/patentability-search/). ## One flat fee, quoted before work begins. There is no hourly billing. Your fundraising work is quoted as a flat fee on your strategy call, once the scope is clear, and nothing starts until you approve it. What sets the fee is the work itself, not the time on the clock. - **The instrument.** A standard SAFE, a negotiated note or a full term sheet. - **The number of investors.** One angel, or a round with several investors and side letters. - **Diligence and filings.** Document review, red-flag cleanup and securities filings. Ongoing work for a growing company can run on a monthly [Fractional IP Counsel](https://arapackelaw.com/counsel-on-demand/) plan instead of one fee per document. This service is not covered by The RLG Guarantee, which applies to patentability searches, provisional patents, design patents and trademarks. ## From first call to money in the bank. What happens at each step and who does the work. When the round closes depends on your investors and is never a promised date. 1. **Strategy call** (Day one). Free. Walk us through the deal, the documents or the problem. 2. **Scope and flat fee** (Flat fee). What the work covers and its price, in writing, before it begins. 3. **Structure and documents**. We recommend SAFE or note terms, then draft the documents. 4. **Negotiation and diligence**. Investor questions answered and terms worked through, with you approving each change. 5. **Closed and filed**. Signed, funds received and securities filings made. ## Questions about SAFEs and fundraising agreements. ### What is a SAFE agreement? A simple agreement for future equity. An investor pays now and receives shares later, usually at the next priced round, at a price set by a valuation cap or discount. It is not a loan, so there is no interest or maturity date. ### Should I use a SAFE or a convertible note? Most early founders use SAFEs because they are simpler and are not debt. A convertible note can make sense when investors want the protection of a loan, or when a priced round is far off. Watch a note’s maturity date, because it can come due before you raise. ### What valuation cap should I set? It depends on your stage, traction, market and the investors you are talking to. The key is to model what each cap means for your ownership after all SAFEs convert, which we do with you before you sign. ### Do I need a lawyer to raise money with a SAFE? Standard SAFE forms are widely used, but a lawyer helps you choose the terms, avoid stacking SAFEs you have not modeled, handle side letters, prepare for diligence and file what securities law requires. ### Is a SAFE a security? Yes. That means the raise needs an exemption from registration, usually under Regulation D, and often a Form D filing with the SEC within 15 days after the first sale, plus state notice filings. ### What do investors check in due diligence? Formation documents, the cap table, material contracts, employment and contractor agreements, and whether the company owns its IP. Missing IP assignments from founders or contractors are among the most common problems found. ### Do patents help a startup raise money? They can. Investors look at whether the technology is protected and owned by the company. A filed patent application, even a provisional, shows the invention is protected and dated. ### How much do fundraising agreements cost? With us it is a flat fee, quoted on your strategy call before any work begins. It depends on the instrument, the number of investors and how much diligence and filing work the round needs. ## More in Startup legal services - [Startup legal services](https://arapackelaw.com/startups/) - [Business formation and structure](https://arapackelaw.com/business-formation-and-structure/) - [Contracts and agreements](https://arapackelaw.com/contracts-agreements/) - [Cease and desist letters](https://arapackelaw.com/cease-desist-letters/) - [Fractional IP counsel](https://arapackelaw.com/counsel-on-demand/) - [FDA regulatory compliance](https://arapackelaw.com/fda-regulatory-compliance/) - [IP licensing agreements](https://arapackelaw.com/intellectual-property-licensing-agreements/) - [Non-disclosure agreements](https://arapackelaw.com/non-disclosure-agreements-ndas/) - [Privacy and data protection](https://arapackelaw.com/privacy-and-data-protection/) - [Technology transfer agreements](https://arapackelaw.com/technology-transfer-agreements/) ## Go deeper on raising money. - [How To Write Angel Investor Agreements That Make Investors Say Yes](https://arapackelaw.com/startups/angel-investor-agreements/) - [Why Patents Are Important to Investors: The IP Factor That Raises Startup Valuations](https://arapackelaw.com/patents/why-patents-are-important-to-investors/) - [5 Critical Factors VC’s Consider When Valuing A Company](https://arapackelaw.com/business/5-critical-factors-vcs-consider-when-valuing-a-company/) [All startup articles](https://arapackelaw.com/category/startups/) ## Next steps - [Book a free strategy call](https://arapackelaw.com/contact-us/) with a registered patent attorney, or call (954) 951-0154 - [Take the Intelligent IP Quiz](https://arapackelaw.com/intelligent-ip-quiz/) to see what to protect first - [The RLG Guarantee](https://arapackelaw.com/rlg-guarantee/), the refund promise on four services General information, not legal advice.