Convertible notes and SAFEs (Simple Agreements for Future Equity) have become the default early-stage fundraising instrument for Singapore startups. They let founders take capital quickly without setting a valuation, defer the cap-table conversation to the next priced round, and avoid the legal complexity of issuing preference shares. But they also carry mechanics — valuation cap, discount, conversion triggers, maturity, interest — that materially change the founder’s economics on exit. This article explains how convertible notes and SAFEs work under Singapore law, the Singapore-specific drafting points, and the traps founders should look out for.
The two instruments side by side
A convertible note is a debt instrument that converts into equity on a defined trigger event. It has a face value, an interest rate, a maturity date, and conversion mechanics. Until conversion, the holder is a creditor of the company.
A SAFE (originally a Y Combinator instrument) is not debt. It is a contract that gives the holder a right to receive shares on a future event. There is no maturity, no interest, and no debt repayment obligation. SAFEs are simpler and faster than convertible notes but provide less downside protection for the investor.
| Feature | Convertible Note | SAFE |
|---|---|---|
| Legal nature | Debt instrument | Contractual right to future equity |
| Interest | Yes (typically 5–8% per annum) | No |
| Maturity | Yes (typically 18–36 months) | No |
| Repayment on default | Possible if no qualifying round occurs | None — SAFE simply does not convert |
| Investor downside | Lower (creditor priority + maturity claim) | Higher (effectively equity from day one) |
| Legal cost to issue | S$5,000–15,000 per round | S$1,500–5,000 per round |
| Stamp duty | Nil on issue; 0.2% on conversion equity issued (per Stamp Duties Act) | Nil on issue; 0.2% on conversion equity issued |
| Use in Singapore | Dominant before 2022; still common for friends-and-family rounds with interest expectation | Dominant from 2023 onwards for typical seed rounds |
The conversion mechanics — where founders should focus
Valuation cap
The valuation cap is the maximum pre-money valuation at which the note/SAFE will convert. If the next priced round is at a valuation below the cap, the noteholder converts at that lower valuation (and so does not “outperform” early-round economics). If the next priced round is above the cap, the noteholder converts at the cap, locking in the discount.
Worked example: a S$500,000 SAFE with a S$5 million cap. If the Series A is at a S$10 million pre-money, the SAFE converts as if its S$500,000 had been invested at S$5 million — i.e. the SAFE holder gets 10% of post-money rather than the 5% they would get without the cap.
Discount
The discount is a percentage off the next priced round’s per-share price. A 20% discount means the SAFE converts at 80% of what new Series A investors are paying. If both a cap and a discount apply, the SAFE converts at whichever gives the holder more shares (cap-or-discount, not cap-and-discount).
Qualifying financing trigger
SAFEs and convertible notes convert on a “qualifying financing” — usually defined as the next equity round that raises at least a stated minimum (commonly S$1 million or S$3 million). Smaller bridge rounds do not trigger conversion. The trigger should be set high enough that early SAFE/note holders are protected from being converted into a small, badly priced round.
Maturity (convertible notes only)
If the qualifying round does not happen before the maturity date, what happens? Two main options:
- Automatic conversion at a fixed valuation (e.g. the cap). This is investor-friendly to founders because it avoids forced repayment.
- Repayment with accrued interest. This is investor-friendly because it preserves their downside.
For early-stage Singapore companies that are still burning cash, automatic conversion at maturity is now the norm. Repayment-on-maturity creates a real solvency risk and can trigger insolvency review under the Insolvency, Restructuring and Dissolution Act 2018.
Pre-money vs post-money SAFE
This is the single biggest change in SAFE practice since 2018. The original “pre-money SAFE” calculated the conversion before the SAFE’s own shares were issued, so multiple SAFEs would dilute each other in non-obvious ways. The “post-money SAFE” (now standard) fixes the percentage ownership at conversion at the cap-implied stake, with all earlier SAFEs converted into the post-money percentage. The post-money SAFE gives certainty to investors but accelerates founder dilution if the company raises multiple SAFE tranches before priced equity.
Singapore-specific considerations
Securities regulation — Section 4A and Section 274 SFA
Issuing convertible notes or SAFEs to investors in Singapore is a securities offering under the Securities and Futures Act 2001. To avoid a full prospectus, the issue must fit a private placement exemption — typically Section 272A (small offers up to S$5 million in 12 months), Section 274 (institutional investors) or Section 275 (accredited investors). Most early-stage Singapore startups rely on Section 272A or Section 275. Documentation should reflect the exemption relied on and include an investor representation that they qualify.
Stamp duty on conversion
When the note or SAFE converts into shares, IRAS treats the issue of new shares as not stampable (no transfer is occurring — the company is issuing new shares). However, if the conversion mechanic involves a transfer of existing shares from a founder to the noteholder (uncommon but possible), 0.2% stamp duty applies on the transfer. Our Stamp Duty Singapore 2026 guide covers this in detail.
Section 76 Companies Act and financial assistance
If a SAFE or note is being issued in connection with a buy-back of founder shares — for example, a “secondary SAFE” where the proceeds are used to repurchase founder equity — Section 76 of the Companies Act on financial assistance can apply. Most pure primary-issuance SAFEs do not trigger Section 76, but the analysis should be done at drafting.
Section 161 authority to issue shares
The eventual conversion will require directors to issue new shares under Section 161 of the Companies Act. The director’s general authority to issue shares should be refreshed at the next AGM to cover the contemplated conversion. We covered this in Section 161 Companies Act Singapore.
ACRA filings
The SAFE or note itself does not need to be filed with ACRA. On conversion, the company files a Return of Allotment within 14 days of issue. If a charge is created over company assets to secure a convertible note (rare for early-stage), the charge must be registered under Section 131 of the Companies Act within 30 days.
Founder traps to avoid
- Stacking SAFEs without modelling dilution. Three S$500k SAFEs at S$5m cap each look identical to one S$1.5m SAFE at S$5m cap — but the post-money SAFE convention can over-dilute the founder if not modelled.
- Low cap, high discount, automatic conversion at maturity. Combined, these mean a founder could lose 30%+ of the cap table to a small early SAFE if the next priced round is delayed.
- Most Favoured Nation (MFN) clauses. Promising one early investor an MFN means any better terms given to a later investor automatically retro-apply. Founders end up renegotiating every term with every later SAFE.
- No pro rata right limit. Granting pro rata participation rights on conversion can be expensive at Series B if many small SAFE holders insist on participating in subsequent rounds.
- Mismatched currencies. SAFE denominated in USD but converting into S$-denominated equity — currency-conversion mechanics need to be in the SAFE itself.
- No information rights ceiling. Without a threshold, every S$10,000 SAFE holder can demand monthly financials.
Documentation checklist
For a clean Singapore SAFE round, founders should ensure they have:
- Board resolution approving the SAFE issue and authorising directors to execute on behalf of the company
- Section 275 / Section 272A investor representations (or equivalent for the exemption being relied on)
- A standardised SAFE template — do not let each investor mark up their own version
- Updated cap table model showing fully-diluted ownership on the SAFE conversion at multiple Series A valuation scenarios
- Board minute and Section 161 authority refresh for the next round
- An ACRA Return of Allotment template ready for when conversion happens
Conclusion
Convertible notes and SAFEs are the right instrument for most early-stage Singapore companies because they let founders move quickly and defer the valuation conversation. But the simplicity is deceptive: the cap, discount, conversion trigger and dilution mechanics determine real ownership outcomes years down the line. Founders should always model their cap table out to Series B before signing the first SAFE, and should standardise on a single template across all investors in a round. The legal cost saving from SAFEs is real, but the strategic cost of getting the terms wrong is much larger.
For Singapore SMEs and family businesses raising external capital for the first time, convertible structures can also work well — though the valuation cap conversation is harder when the company is more mature and has existing revenue. In those cases, a direct preference share investment may be the cleaner path.
— The Editorial Team, Raffles Corporate Services