Convertible notes vs SAFEs in Ireland: which to use when
By Dylan Holland, Founder, OnlineLegalServices.ie
Most Irish startup financings before a priced Series Seed round are now closing on SAFEs (Simple Agreements for Future Equity) rather than convertible notes. The shift happened gradually between 2018 and 2024 and is now the market default for Irish angel and pre-seed rounds. But the choice between SAFE and convertible note still matters case-by-case, and the legal drafting nuances of each — particularly when adapted from US Y Combinator templates onto an Irish company — can move outcomes by tens of percentage points of equity at the next round. This article explains the difference, the use-cases, and the drafting traps.
What is a convertible note?
A convertible note is a debt instrument issued by a company to an investor. It carries an interest rate (typically 4-8% in Irish early-stage rounds), a maturity date (typically 18-36 months from issue), and a conversion mechanism. On a defined trigger event — usually the next priced equity round — the principal plus accrued interest converts into shares of the new round’s share class, typically with a valuation cap and/or a discount that gives the investor a better price than the priced-round investors. If no priced round happens before maturity, the company must repay the principal plus interest in cash (or negotiate an extension).
Legally, in Ireland, a convertible note is a debt obligation — the investor is a creditor of the company until conversion. This has consequences: the company’s balance sheet shows debt, lender consent may be needed for subsequent financings, and the investor has creditor remedies on default that an equity investor does not have.
What is a SAFE?
A SAFE — Simple Agreement for Future Equity — is contingent equity. It is a contractual right to receive shares in the company on a defined trigger event (priced round, change of control, IPO, dissolution), but until that event the SAFE-holder is not a shareholder, not a creditor, and not entitled to any current cash flow. There is no interest, no maturity date, no repayment obligation. If no trigger event ever happens, the SAFE simply lives on the company’s books indefinitely.
SAFEs were created by Y Combinator in 2013 and adapted for Irish use over subsequent years. Modern Irish SAFEs are drafted against the Companies Act 2014 with Irish-specific provisions on pre-emption, board approval, and CRO filing — not bare copy-pastes of the US YC template. Our SAFE/convertible note review covers both Irish-drafted SAFEs and YC-style adaptations.
The valuation cap and the discount
Both convertible notes and SAFEs typically include a valuation cap, a discount, or both. The valuation cap is a maximum company valuation at which the instrument converts — protecting the investor against being diluted on a high subsequent round. The discount (typically 15-25% for SAFEs, 10-25% for convertible notes) gives the investor a price below the priced-round investors. Where both apply, conversion uses whichever produces a better price for the investor.
The drafting traps: (1) ambiguity about whether the cap or the discount controls when both could apply; (2) silence on what happens to a SAFE if the next round closes at or below the cap; (3) failure to specify pre-money vs post-money cap (post-money is the modern YC default and gives the investor more dilution protection). All three are common in Irish startup paperwork and all three matter at conversion time.
When to use a convertible note
Three situations favour convertible notes over SAFEs in Irish early-stage rounds:
- Investor wants downside protection. A convertible note pays interest and is repayable on maturity if no round happens. SAFEs offer neither. For a cautious or first-time angel investor, convertible notes are easier to get comfortable with.
- Bank or institutional investor. Irish banks and many institutional pre-seed funds are familiar with debt instruments and less familiar with SAFEs. A convertible note fits the box they already have for “early-stage convertible debt”.
- Clear path to a priced round. When the company expects to close a priced round within 12-18 months, the convertible note’s maturity-date pressure is non-binding, and the investor gets the benefit of accrued interest as part of the conversion equation.
When to use a SAFE
SAFEs are now the default for most early-stage Irish rounds. Use a SAFE when:
- The company has no clear priced-round timeline. SAFEs do not have maturity dates, so they remove the pressure to close a priced round on a fixed timeline. The company can wait for the right round terms rather than the closest deadline.
- The investor is sophisticated and SAFE-familiar. Most Irish VCs and many Irish angels are now SAFE-default. Pushing a convertible note instead introduces friction.
- The company wants to avoid debt on the balance sheet. Convertible notes show as debt; SAFEs typically show as a long-term liability or contingent equity (accounting treatment varies). Founders raising debt finance separately may prefer the cleaner balance sheet of a SAFE.
Drafting a SAFE for Irish use
Three Irish-specific drafting points. First: pre-emption. Section 69 of the Companies Act 2014 gives existing shareholders pre-emption rights on new share issues by default. The SAFE must be drafted to include either an explicit waiver of pre-emption (signed by existing shareholders) or a mechanic that ensures pre-emption is waived at conversion time. Second: board approval. The constitution of most Irish companies requires board approval for any share issuance; SAFEs need to be authorised by board resolution at signing and at conversion. Third: CRO filing. No B5 is needed at SAFE signing; a B5 is needed at conversion. Founders should diary the conversion event and the corresponding filing deadline.
Our board resolution drafting service handles the supporting paperwork at both SAFE signing and at conversion.
Modelling SAFE conversion
The mistake founders make most often: treating SAFE-raised cash as if it has zero dilution effect. SAFEs convert at the next priced round and the conversion typically dilutes the founder’s stake by 5-15% per SAFE round. Across multiple SAFE rounds (which is now the norm — companies often raise 2-4 SAFE rounds before a priced Series Seed), cumulative dilution can be 25-35%. Modelling fully-diluted cap tables that include SAFE conversion is essential. Our cap-table legal health check includes SAFE-conversion modelling.
Common drafting errors in Irish SAFEs
Three patterns. First: copying a US Y Combinator SAFE without Irish adaptation — particularly the pre-emption and CRO-filing mechanics. Second: failing to specify what happens on a “non-priced” trigger event like an asset sale or change of control. Third: silent on conversion mechanics if the next round is below the valuation cap (does the SAFE convert at the cap or at the round price?). All three are routine in poorly-drafted Irish SAFEs and all three create disputes at conversion.
Frequently asked questions
Are SAFEs legal in Ireland?
Yes — SAFEs (Simple Agreements for Future Equity) are enforceable contracts under Irish law and are commonly used in Irish startup financing. The mechanics need to be drafted against Irish company law (particularly the Companies Act 2014’s rules on share issuance and pre-emption) rather than copy-pasted from the US Y Combinator template. The economics carry across; the legal mechanics need adaptation.
What is the difference between a SAFE and a convertible note?
A SAFE is contingent equity — it converts to shares on a defined trigger event (typically the next priced round) and pays no interest. A convertible note is debt — it pays interest, has a maturity date, and converts to shares at the next round (or is repayable in cash if no round happens before maturity). Convertible notes are more familiar to traditional Irish lenders and banks; SAFEs are more familiar to Irish angel investors and VCs and are the modern default for early-stage Irish rounds.
When should an Irish startup use a SAFE vs a convertible note?
SAFEs are typically the better choice for early-stage rounds where the company has no clear timeline to a priced round and wants to avoid the maturity-date pressure of debt. Convertible notes are typically the better choice when investors want downside protection (interest accruing, repayable if no round happens) or when the company is closer to a priced round and the maturity date is unlikely to bind. The market has shifted heavily toward SAFEs in Irish early-stage financing since 2020.
Do SAFEs need to be filed with the CRO in Ireland?
No — a SAFE is a contractual instrument, not a share-issue event, so it does not trigger a B5 filing at signing. The B5 is filed when the SAFE converts and the company actually issues shares. The same applies to convertible notes. However, both should be reflected in the company’s internal cap-table maintenance and disclosed in any subsequent fundraising due diligence.
Can a SAFE include a valuation cap and a discount?
Yes — and most Irish SAFEs include both. The valuation cap sets a maximum company valuation at which the SAFE converts, protecting the investor on upside. The discount (typically 15-25%) gives the investor a price below the next round’s price. Where both apply, the conversion uses whichever produces the better price for the investor. Drafting the cap-vs-discount logic precisely is important — ambiguous drafting causes disputes at the conversion event.
Get your SAFE or convertible note reviewed
Before you close a SAFE or convertible-note round, get the document reviewed against Irish law. SAFE / convertible-note review at fixed-fee, or book a 30-minute startup-shares advice call to walk through your specific instrument before signing. All pricing is published.
By Dylan Holland, Founder, OnlineLegalServices.ie / PLUSOLS LIMITED.
Reviewed by a qualified Irish solicitor regulated by the Law Society of Ireland. This article is general legal information for Irish startup founders and is not a substitute for advice on a specific matter. Pricing on linked product pages is current at the date of publication; please refer to the linked page for the live rate.
