Plan Writers - TFP - 7/17

🧠 The neuroscience behind pitching

Ever wonder why some founders walk away from pitch meetings with checks, while others – with equally solid businesses – leave empty-handed?

The answer might be science.

See, the human brain is designed to respond to information in specific ways. And Matthew Khalili from Plan Writers found that there are 4 key principles that founders can use to get the "right" response.

These principles aren't just fluffy presentation tips — they're based on how our brains work. And they truly help founders raise more successfully.

Oh, and Matthew — who runs a company that develops investor-ready decks that’s helped founders raise over $1B collectively — is offering a consult and deck review to all our readers.

Insider rates for anyone ready to get going, and free deck review to anyone who isn't ready quite yet.

*this is sponsored.

📰 Today's Edition: SAFE vs Convertible Notes

When VCs publish a blog post or appear at a guest speaker at some startup event, they always seem to use SAFEs and Convertible Notes interchangeably.

Have you noticed this? They’ll be like: “When you raise on a SAFE or convertible note blah blah blah…”

It makes it seem like these two instruments are exactly the same thing.

But they’re not.

Let's break down the differences so you can decide which one is right for you.

Quick Breakdown of SAFEs

SAFE = Simple Agreement for Future Equity

SAFEs are basically an IOU that says "I'm giving you money now, and you'll give me shares later when you figure out what your company is actually worth."

Here's how it works: An investor gives you cash today. In return, they get the right to buy shares in your company when you do your next big funding round.

No interest, no deadline, no paying anyone back.

Here’s a simple way of thinking about SAFEs:

Imagine you're selling cookies. Your friend gives you $10 today to help buy supplies, but instead of getting a cookie right now, they want to wait and buy the cookie later, after you’ve perfected the recipe.

The Discount: Later, when you're selling cookies for $2 each, your friend gets to buy theirs for $1.50 because they helped you early (that's a 25% discount).

The Valuation Cap: Your friend also says "Even if your cookies get super popular and expensive, I still want to buy mine for $1.50 each." So even if new customers are willing to pay $5 for a cookie, your friend still gets to buy their cookie at the $1.50 price you agreed on earlier.

In startup terms: When you raise money later, the early investor's $10 turns into actual ownership in your company.

They either get more shares for their money (the discount) or they get shares based on a lower company value (the cap) – whichever is better for them.

Quick Breakdown of Convertible Notes

Convertible notes have been around much longer and work a bit differently.

These are loans to your company that can turn into equity later.

Here’s how it works: The investor loans you money, and that money earns interest over time (usually around 2-8% annually).

The note also has a maturity date – like a "due date" – typically 12-24 months away.

Just like with SAFEs, when you raise your next round of funding, the loan (plus interest) converts into shares. The investor usually gets the same discount or valuation cap benefits.

This is what everyone wants to happen – the investor gets equity, not cash back.

But it doesn’t always work that way.

For example, if you don't raise another round before the maturity date, you're technically supposed to pay back the loan in cash.

Most startups don't have that money lying around (hi, you spent it growing the business), so there can be some awkward negotiations about extending the deadline or figuring out another solution.

The Key Difference

The biggest difference between a SAFE and a convertible note? SAFEs aren't debt – they're placeholders for equity.

Convertible notes are loans that you technically owe back.

This is why SAFEs tend to be less stressful, while convertible notes give investors a bit more protection.

Three Things The Document Will Impact

The instrument you pick for your fundraising round can affect three things:

1. How fast you close the deal

2. How much company you’re giving away (different structures = different dilution)

3. How much you’ll be negotiating with investors

Let’s dig a little deeper.

Why You May Want the SAFE

1. Less legal work

Y Combinator created the SAFE, and they did the heavy lifting on the legal docs.

Most lawyers know these templates super well, which means fewer billable hours customizing them.

2. No stressful deadline

Convertible notes have a maturity date. SAFEs do not.

You won't wake up in 18 months panicking about paying back investors if you haven't raised your Series A yet.

3. Angels and Accelerators 💛 Them

Most angel investors and accelerators prefer SAFEs because they're cleaner and faster to execute.

If you're raising from these types of investors, raising a SAFE will likely get you a "yes, let's move forward" instead of "let me have my lawyer review this."

Why You May Want the Convertible Note

1. Investors Want Traditional Loan Features

Some investors, especially more traditional ones or those from non-tech backgrounds, prefer the loan structure.

They like seeing interest accrue and having a clear repayment timeline (I mean… who doesn’t?).

2. You Have a Clear Timeline

If you're confident you'll raise your Series A within 12-18 months, a convertible note can work well.

The maturity date creates a forcing function that can help you stay focused on hitting your fundraising milestones.

What We Typically Advise

For most early-stage founders, we lean toward SAFEs. Here's why:

• They're faster to negotiate and close

• Less legal complexity means lower costs

• They're the expected standard in most startup ecosystems

• No maturity date pressure lets you focus on building

That said, every situation is different. If you're in an industry where convertible notes are the norm, or if your investors strongly prefer them, don't die on this hill.

When an Investor Asks for the "Other" One

If you want a SAFE but they want a convertible note, say:

"We'd prefer to stick with a SAFE since it's simpler and faster to execute. Most of our other investors are using this structure, and it helps us maintain consistency across our cap table. Are there specific concerns about the SAFE structure we can address?"

If you want a convertible note but they want a SAFE, try:

"We understand SAFEs are popular, but we'd prefer a convertible note for this round because [specific reason – timeline certainty, investor preference, etc.]. We can use standard terms that most lawyers are familiar with to keep things moving quickly."

Reality Check

The best funding instrument is the one that gets you funded fastest.

Spending 3 weeks debating SAFE vs. convertible note is 3 weeks you're not growing the business. Pick the document that:

1. Matches most of your investors' preferences

2. Your lawyer can execute quickly

3. Keeps negotiations moving quickly

That's it.

You're not choosing between good and evil here. Both SAFEs and convertible notes have funded countless startups.

Pick one. Execute fast. And get back to solving that huge problem.

Stay SAFE out there,

Audrey from Hustle Fund

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