You’ve got the pitch deck. You’ve got the vision. Now you just need the fuel. For most Pennsylvania startups, whether you are scaling a fintech app in Center City or a robotics firm in Pittsburgh, that fuel usually arrives in the form of Seed or Angel funding.

However, when an investor says, “Send me the docs,” many founders hit a wall. Do you use a Convertible Note? Is it a SAFE? What about a KISS? While they all aim to get cash into your bank account in exchange for future equity, the legal mechanics under the hood are vastly different. In 2026, when cap-table precision is more scrutinized than ever, choosing the wrong instrument can lead to dilution surprises down the road.

Here is the breakdown of the three heavy hitters in seed-stage funding.

1. The Convertible Note: The Traditional Debt

A Convertible Note is technically a loan. As a debt instrument, it has two features that other instruments lack: an interest rate and a maturity date.

How It Works

Investors loan the company money. Instead of paying it back in cash, the debt, which includes principal plus interest, converts into equity when you close your next major round of funding, usually a Series A.

Key Components

  • Valuation Cap: A ceiling on the price at which the note converts.
  • Discount Rate: A percentage off the Series A price, typically 15 to 25 percent.
  • Maturity Date: The date by which you must either convert the note or pay it back.

The Risk

In a slow market, the maturity date can be a significant source of leverage for investors. If you have not raised your next round by that date, the investor could technically demand repayment, potentially bankrupting a cash-poor startup.

2. The SAFE: The Founder Friendly Standard

Created by Y Combinator, the SAFE (Simple Agreement for Future Equity) was designed to simplify debt. It is not a loan. It is a contract that gives the investor the right to future shares.

No Interest and No Maturity

This is the biggest draw for founders. There is no ticking clock and no accruing interest.

The 2026 Standard Post-Money SAFE

Most investors now insist on Post-Money SAFEs. This allows them to know exactly what percentage of the company they are buying before the next round.

Simplicity

A SAFE is typically only a few pages long, keeping legal fees much lower than those for a Convertible Note.

The Risk

Because SAFEs are easy, founders often stack too many. Without a cap-table simulation, you might find that by the time you reach Series A, you’ve accidentally given away 40 percent or more of your company before the real round even begins.

3. The KISS: The Middle Child

Developed by 500 Startups, KISS (Keep It Simple Security) was designed to bridge the gap between Convertible Notes and SAFEs. It comes in two versions: a Debt version with interest and maturity, and an Equity version without.

Investor Protections

KISS documents often include Most Favored Nation clauses and information rights that are standard in Series A but often missing in SAFEs.

Clarity

It provides more robust legal protections for the investor while maintaining a relatively simple structure for the founder.

Comparison at a Glance

Feature Convertible Note SAFE KISS
Legal Status Debt (Loan) Contract or Equity Varies (Debt or Equity)
Interest Rate Yes (Typically 2–8%) No Optional
Maturity Date Yes (Typically 18–24 months) No Optional
Complexity Moderate Low Moderate
Conversion Principal + Interest Principal Only Principal (+ Interest if Debt)

The Logic of Conversion: Caps vs. Discounts

Regardless of which document you choose, the conversion usually relies on two safety nets for the investor: the Valuation Cap and the Discount.

Think of it this way. The investor is taking a huge risk by giving you money early. To reward that risk, they want to make sure they get a better price per share than the big investors who come in during the Series A.

When your Series A finally happens, the math determines two different possible prices for the seed investor’s shares. One price is based on the Valuation Cap, which is the ceiling you agreed upon. The other is based on the Discount, which is the percentage off the Series A price. The investor almost always gets whichever price is lower. This ensures they receive the maximum number of shares for their early support.

As a founder, your goal is to keep the Valuation Cap high enough to prevent your own ownership from being wiped out, but low enough to entice early-stage risk-takers.

The Pennsylvania Perspective

While these are national standards, Pennsylvania founders must ensure that their Operating Agreement for LLCs or Bylaws for Corporations permit the issuance of these convertible securities. Furthermore, under Pennsylvania securities law, you must ensure you are following blue sky filing requirements even for these early-stage notes to avoid regulatory headaches during your first big audit.

Final Thoughts

Do not let the simplicity of these documents fool you. A SAFE signed today dictates who owns your company five years from now.

Speak to Spengler & Agans Now

Choosing the right funding instrument can shape your ownership, control, and future fundraising options. If you are preparing to raise seed capital and want to be sure your documents align with Pennsylvania law and your long-term growth plans, speak with an attorney who works with startups every day. Contact us online to connect with Nathan Wenk at Spengler & Agans and get guidance tailored to your business.