SAFE or Convertible Note in Chile? The Instrument-by-Instrument Comparison
Both instruments postpone the valuation discussion and get money into the company fast. They differ in what happens in between: debt or not, maturity or not, taxes and the mechanics of converting in a Chilean S.p.A.
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The choice turns on three variables: whether the founders accept debt on the balance sheet, how much deadline pressure the company tolerates, and the tax cost. The SAFE is not debt: it accrues no interest and never matures. The convertible note is a loan with interest, maturity and, in principle, stamp tax. Neither is superior in the abstract.
What each instrument is
The two contracts solve the same problem, early money without a price, through opposite legal natures.
SAFE
An investment contract: the investor pays today and acquires the right to receive shares when the trigger occurs, usually the next priced round. There is no principal to repay, no interest and no maturity. If the round never comes, the investor keeps waiting or relies on liquidity events agreed in the contract.
Convertible note
A loan: the company owes the money, interest accrues and a maturity date exists. Conversion into shares, with discount or cap, is the expected exit, but if it does not happen the investor holds enforceable debt. That right reorders the negotiation when maturity approaches.
The comparison, variable by variable
| Variable | SAFE | Convertible note |
|---|---|---|
| Legal nature | Investment contract: right to future shares | Money loan convertible into shares |
| Debt on balance sheet | No | Yes, until conversion |
| Interest | None accrued | Accrues agreed interest |
| Maturity | No deadline: waits for the conversion trigger | Fixed date: paid, converted or renegotiated |
| Stamp tax | Not applicable: not a credit operation | Applies in principle, as any loan |
| Conversion price | Discount, valuation cap or both | Discount, valuation cap or both |
| If the round never comes | The investor keeps waiting for the trigger | The investor can demand payment |
When each one fits
The answer is a negotiation outcome, not a doctrine. These are the patterns we see in Chilean rounds.
The SAFE tends to fit when
- The round is early and speed matters more than protection.
- The founders will not accept debt or maturity pressure.
- Investors follow standard ecosystem terms and expect a priced round soon.
- Avoiding stamp tax and interest accounting simplifies the operation.
The note tends to fit when
- The investor demands downside protection to commit.
- The money is a bridge to a defined round or milestone.
- The parties want the discipline of a deadline to force the next raise.
- A lender profile participates and needs the credit on its books.
How it is documented in Chile
Both instruments are foreign templates that must land on Chilean corporate law, almost always on an S.p.A.
- The conversion needs shares to exist: the practice is approving a capital increase in advance or binding shareholders to approve it when the trigger fires.
- The contract must translate the trigger, discount and cap into subscription mechanics: which class of shares, at what price formula, within what period.
- The shareholders agreement should anticipate the new investor: adhesion, information rights and any preference attached to the converted shares.
- On the note, the loan formalities matter: interest within legal limits, stamp tax treatment and the currency and readjustment clauses of the principal.
The corporate side of the round, the shareholders agreement and the due diligence that precedes a priced round, is covered in shareholders agreements and legal due diligence.
Frequently asked questions
What is a SAFE?
The SAFE (Simple Agreement for Future Equity) is a contract under which the investor contributes money today in exchange for the right to receive shares upon a future event, typically the next financing round. It is not a loan: it accrues no interest, has no maturity date and creates no debt on the company's balance sheet.
What is a convertible note?
It is a money loan that accrues interest and has a maturity date, with the particularity that principal and interest can convert into shares, normally with a discount or a valuation cap. Until it converts, it is enforceable debt: if maturity arrives without a round, the investor can collect or renegotiate.
Which one favors founders?
It depends on negotiating position and the company's plan. The SAFE removes maturity pressure and simplifies the balance sheet, which favors founders at early stages. The convertible note gives the investor additional protection that can unlock capital when perceived risk is higher. Neither is superior in the abstract.
How is each instrument taxed in Chile?
The convertible note is a money-credit operation: interest is taxable for the investor and the loan is in principle subject to stamp tax. The SAFE is not a loan, so it accrues no taxable interest and is not subject to that tax. The precise treatment depends on each contract's structure and should be validated case by case.
How are they implemented in a Chilean S.p.A.?
Both require preparing the conversion from the start: in the S.p.A. the practice is to approve a capital increase and keep payment shares available, or to bind the shareholders to attend the meeting approving it. The contract defines the conversion trigger, the discount or cap, and the class of shares the investor will receive.
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