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 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 themselved 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 signficant challenges down the road.
David Chase, Managing Partner at Advanced CFO, has experience in small to medium private companies and large public companies as a senior operational and financial leader. With nearly 20 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience. Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $0.5 billion.