Equity, SAFE, convertible note, or revenue share: choosing what you sell
The security is what a crowd investor actually owns. How equity, SAFEs, convertible notes, and revenue shares compare, and what each does to the campaign.
By Bryce W Jones6 min read
The security is what an investor actually owns when they put money into your raise. In a crowdfunding raise there are four common choices: equity, a SAFE, a convertible note, or a revenue share. Each one makes a different promise. For a crowd raise, the most useful test is how easily an ordinary investor can understand that promise, because everything you sell has to be explained on the offering page, in the video, and in every ad. Your securities counsel makes the final call. This post is about what each choice does to the campaign.
The four options in one table
| Security | What the investor owns | Needs a valuation now? | Easy to explain? |
|---|---|---|---|
| Equity | Shares in the company today | Yes | Easiest |
| SAFE | A right to shares later | No, usually a cap | Harder |
| Convertible note | A loan meant to become shares | No, usually a cap | Harder |
| Revenue share | A share of revenue until a set amount is repaid | No | Moderate |
Equity
Equity means the investor buys shares in the company now. In crowdfunding it is often common stock, sometimes non-voting, and sometimes preferred stock with specific rights. The company sets a price per share, which means it sets a valuation today.
What it does to the campaign. Equity is the easiest promise to explain. "You own part of the company" needs no footnote, and that is a real advantage when your audience is customers and fans rather than professional investors. It is also the cleanest fit for the fanbase story: an owner feels like an owner. The trade is that the valuation is public and fixed, and it has to stand up to comparison with your traction. And thousands of shareholders bring cap table work. See managing a cap table with thousands of investors.
SAFE
A SAFE, or simple agreement for future equity, gives the investor a right to shares later, usually when the company raises a priced round or is sold. It typically has a valuation cap, a discount, or both. It is not debt: no interest, no maturity date.
What it does to the campaign. A SAFE lets the company avoid setting a valuation now, which is why early-stage companies like it. For a crowd, that is the catch. The investor owns no shares until conversion, may have no vote and nothing to sell in the meantime, and conversion depends on events the company controls. Some SAFEs used in crowdfunding let the company decide whether a round triggers conversion, and the SEC has warned retail investors to read those terms closely. A SAFE raise has to explain all of this plainly, and some investors will decide they would rather own shares.
Convertible note
A convertible note is a loan meant to become shares. It earns interest and has a maturity date. When a qualifying round happens, the balance converts, usually with a cap or a discount.
What it does to the campaign. For investors, a note looks a bit like a SAFE with a safety net: it is debt until it converts. For the company, that safety net is a liability. If the maturity date arrives before a conversion, the company may have to repay, convert at a set valuation, or ask holders to extend. In a crowd raise, asking hundreds or thousands of noteholders for anything is hard work. The offering documents must describe the interest, maturity, and conversion terms, and the marketing must match them.
Revenue share
A revenue share, sometimes structured as a revenue-sharing note, pays investors a percentage of the company's revenue until they have received a set multiple of what they put in, or until a maturity date. It does not give ownership.
What it does to the campaign. A revenue share suits a business with steady revenue and no plan for a sale or a large priced round, like a restaurant, a brewery, or a local service business. The promise is concrete: payments tied to sales. But it is not ownership, so it suits investors looking for payments more than investors who want to feel like owners. It also costs the company cash every period, which the business plan has to support. Counsel should decide how payments, defaults, and the multiple are described, because describing expected payments is close to describing returns.
How to choose
These questions narrow it down. Bring the answers to counsel.
- Can we defend a valuation today? If yes, equity is usually the simplest choice for a crowd. If not, a SAFE or note avoids the question, at the cost of a harder explanation.
- Do we expect a priced round or a sale? SAFEs and notes depend on one to convert. If neither is likely, they may never become shares, and a revenue share or equity may fit better.
- Do we have steady revenue we can share? A revenue share needs it, every period.
- How sophisticated is our audience? The more your investors look like customers and fans, the more the plain promise of equity helps.
- What will the next round's investors think? Thousands of small holders, of any kind, is something a later investor will ask about. The security and the holding structure both affect the answer.
Whatever you choose, it goes into the offering documents and is very hard to change once the raise is live. Make the choice early, alongside the rest of the decisions before launch.
How to explain it on the offering page
- Say what the investor owns in one sentence, before any detail.
- Explain when, if ever, it becomes shares or pays out, in plain words.
- Show one worked example if the terms involve a cap, a discount, or a multiple, reviewed by counsel.
- Make the marketing match the filing. Nothing in an ad or video should describe the security differently from the offering documents. See what goes on an offering page.
This is general information, not legal or investment advice. Which security fits your company, and how it is described, is a decision for your securities counsel.
FAQ
What security should a startup offer in equity crowdfunding?
It depends on whether the company can defend a valuation today, whether it expects a priced round or a sale, and how sophisticated its investors are. Equity is the easiest for a crowd to understand. SAFEs and convertible notes avoid setting a valuation but are harder to explain. Securities counsel should make the final call.
Is a SAFE a good idea for a crowdfunding raise?
It can be, especially for an early-stage company that cannot yet defend a valuation. But crowd investors own no shares until the SAFE converts, and some SAFEs may never convert. The offering page has to explain that plainly, and some investors will prefer equity.
What is the difference between a SAFE and a convertible note?
Both are rights to future shares, usually with a cap or discount. A convertible note is debt: it earns interest and has a maturity date, and the company may have to repay it if it has not converted by then. A SAFE has no interest and no maturity date.
What is a revenue share in crowdfunding?
A revenue share pays investors a percentage of the company's revenue until they receive a set multiple of their investment or a maturity date arrives. It gives no ownership. It suits businesses with steady revenue and no plan to sell or raise a large priced round.
Can you change the security after a crowdfunding raise launches?
In practice, rarely. The security is defined in the offering documents, and changing it is a material change that may require an amendment and investor reconfirmation. Decide it before launch.