DISCOVER THE STACK NOTE™

Stack Note

SAFE vs Convertible Note vs STACK Note

Choosing between a SAFE, a Convertible Note, a KISS note or a Structured venture note (STACK Note™) directly impacts founder dilution, ownership control, governance, and long-term capital strategy.

This guide compares the three most common early-stage funding instruments used in pre-seed and seed venture capital. Comparison of startup funding instruments including SAFE, Convertible Notes, and structured venture notes. This table outlines differences in speed to sign, ownership predictability, valuation mechanisms, investor structure, dilution risk, governance, and long-term capital flexibility.

Comparison table of SAFE, convertible notes, and structured venture notes showing differences in dilution, valuation mechanisms, governance, and investor rights for startup fundraising.

Startup Funding Instrument Comparison Table

Startup funding comparison table showing differences between SAFE (Simple Agreement for Future Equity), Convertible Notes, and Structured Venture Notes (STACK Notes). Columns: 1. SAFE (Simple Agreement for Future Equity) 2. Convertible Note 3. STACK Note (Structured Venture Note) Rows and content: Speed to Sign: SAFE: Fast, widely recognised by early-stage investors Convertible Note: Moderate; typically requires negotiation STACK Note: Fast execution with SAFE-like documentation Ownership Predictability: SAFE: Can drift with multiple SAFEs and option pool changes Convertible Note: Can drift; accrued interest increases dilution STACK Note: Hard cap at 5% post-money ownership Valuation / Pricing Mechanism: SAFE: Valuation cap and/or discount; sometimes MFN Convertible Note: Cap or discount plus interest and maturity STACK Note: Advisory valuation ratified at close OR 20% discount, whichever is more favourable Lead Investor Structure: SAFE: No defined lead Convertible Note: No defined lead STACK Note: Institutional lead by default or follows an existing reputable VC Interest & Maturity: SAFE: No interest; no maturity date Convertible Note: Interest accrues; fixed maturity date STACK Note: PIK interest only; flexible 36-month backstop Down-Round Protection: SAFE: Typically none Convertible Note: Sometimes post-conversion STACK Note: Weighted-average anti-dilution protection MFN Protection: SAFE: Sometimes (e.g. uncapped SAFE variants) Convertible Note: Negotiated STACK Note: Automatic harmonisation if later terms improve Pro-Rata Rights: SAFE: Usually next financing round Convertible Note: Often next financing round STACK Note: Pro-rata through IPO Option Pool Treatment: SAFE: Often unclear; can increase dilution Convertible Note: Often unclear STACK Note: Pre-agreed 10% ESOP at close; defined refresh mechanics Board & Governance: SAFE: Rarely defined Convertible Note: Sometimes defined STACK Note: Formal board structure; investor seat or observer by agreement Liquidity Pathways: SAFE: No buyback mechanism Convertible Note: Rarely included STACK Note: Founder buyback option after 3 years at fair market value Future Capital Flexibility: SAFE: Multiple SAFEs can stack dilution Convertible Note: Additional notes increase complexity STACK Note: Founder-elected upsize up to 2%; milestone step-downs available

SAFE vs Convertible Note: Key Structural Differences

SAFE Agreements

SAFEs are popular in early-stage venture capital due to speed and simplicity. However, they can create ownership drift when multiple SAFEs are issued across pre-seed and seed rounds.

Key risks:
• Dilution stacking
• Option pool surprises
• No maturity discipline
• No formal governance structure

Convertible Notes

Convertible notes introduce interest accrual and a maturity clock. They are debt instruments that convert into equity.

Key structural considerations:
• Interest increases dilution
• Maturity creates repayment pressure
• Negotiation complexity higher than SAFE
• Governance still often undefined

STACK Note: Structured Venture Instrument

The STACK Note is designed to combine speed with ownership clarity and institutional governance.

Structural features include:
• Hard post-money ownership cap
• Defined ESOP treatment
• Formal board formation
• Anti-dilution protection
• Long-term pro-rata alignment
• Defined liquidity and buyback path

This structure is built to reduce founder dilution uncertainty while maintaining investor discipline.

Which Funding Instrument Is Best for Early-Stage Founders?

The answer depends on:

• Desired ownership predictability
• Dilution tolerance
• Governance readiness
• Capital strategy through Series A
• Long-term alignment with investors

For founders raising institutional capital, instrument structure is not cosmetic. It directly affects cap table stability, control rights, and future round dynamics.

## How this tool fits into your capital strategy

Equity instruments define how ownership is structured over time.

To understand how these instruments convert and impact dilution, explore:

- Startup Valuation & Equity

- Cap Tables & Ownership

These guides explain how financing structures affect long-term ownership.