What investment structure does Harvard Business School Alumni Angels of New York prefer for deals?

Author - Sharjeel Kashmir (PLDA 07), President & Screening Co-Chair, HBS Alumni Angels of Greater New York (see original post) Are you an entrepreneur seeking angel funding? Learn more about how to apply to pitch to the HBS Alumni Angels of Greater New York.

Not all early-stage money is created equal. In the high-stakes world of early-stage investing, choosing the right investment vehicle can be the difference between a future windfall and a regretful tax write-off. While founders obsess over product-market fit, angel investors need to worry about something far less glamorous—but just as critical: deal structure.

Here’s a review of the five most common tools in the angel investor toolbox—SAFE notes, convertible notes, convertible bonds, priced equity, and the new ACA Model Convertible Promissory Note—and why your pick matters more than you think.

I. SAFE Notes: The Silicon Valley Shortcut—Fast. Cheap. Uncertain.

The SAFE (Simple Agreement for Future Equity) is the poster child of founder-first financing. Created by Y Combinator in 2013 to simplify early-stage rounds, it skips debt, skips interest, and skips maturity. It's not a loan. It's not equity. It’s a handshake in legalese: you'll get equity when the company raises more money later. If it doesn’t, you remain in “suspended animation” with your SAFE.

Most importantly, Y Combinator changed the SAFE from pre-money to post-money around 2019, creating certainty around who bears the risk of future dilution.

Pros:

• Lightning fast to close.

• Low legal costs.

• Founders love it, especially in hot deals.

• Some lawyers, and the instrument itself, claim it qualifies for Qualified Small Business Stock (QSBS) from the time it’s issued, not later when it’s converted.

Cons:

• No investor rights or protections.

• No interest or maturity date = no leverage and no deadlines.

• If the company never raises again, you could be stuck with a ghost agreement.

• In bankruptcy, SAFEs are usually last in line—if at all.

Summary: SAFEs are founder-friendly and investor-risky. A bet on vision with little control. Best used when fear of missing out (FOMO) outweighs fiduciary. However, now that the ACA has transitioned to a post-money conversion, the question for the investor is whether the downside protection of the conversion is worth missing out on the upside of a SAFE deal. It’s a deal-by-deal call. Some startups are worth the gamble—visionary founders, an established track record, massive markets, and early traction. In those cases, a SAFE might be the only ticket in. But, with others, the story may sound good, but the downside's real, and the upside’s mostly wishful thinking.

II. Convertible Notes: Equity, Eventually

Convertible notes are short-term debt that converts into equity later, typically during a priced round. Unlike SAFEs, they carry interest and a maturity date, creating a kind of ticking clock.

Pros:

• You get equity later, often at whichever is lower: a discount or a valuation cap.

• It has debt-like protections: maturity date, interest rate.

• More negotiation leverage than a SAFE.

Cons:

• Risk of repayment if conversion doesn’t happen.

• Complexity can balloon with amendments and extensions.

• May spook future VCs if cap tables get messy.

• Does not qualify for QSBS until converted.

Bottom Line: More investor protection than a SAFE, but you’re still kicking the valuation can down the road. However, many convertible notes are made on a pre-money basis, which creates uncertainty for investors and founders.

III. Convertible Bonds: The Heavier Hitter. 

Convertible bonds are like convertible notes but are typically used in later-stage or international deals. They’re debt instruments with interest, maturity, and conversion rights to equity. In practice, they’re structured more like traditional bonds and are rare in true early-stage angel rounds.

Pros:

• A formal debt instrument, which may offer more investor protection.

• Rank higher in the repayment hierarchy than SAFEs or notes.

• Convertible if things go well, recoverable if they don’t.

Cons:

• Higher legal complexity and cost.

• Might intimidate founders.

• Not standard for early-stage startups.

• May trigger debt covenants or signaling issues for future funding.

Summary: Best suited for later-stage investments or investors looking for downside protection without giving up upside. Useful for large checks, risk-averse angels, or deals outside U.S. borders.

IV. Priced Equity Rounds: Pay to Play

This is the cleanest and most transparent path: buy equity now, at an agreed price. You’re on the cap table, own shares, and ride the company’s journey from day one.

Pros:

• No ambiguity—clear ownership from day one.

• Strong governance rights: voting, information, and sometimes board seats.

• Sends a signal of trust and seriousness to the market.

• Qualifies for QSBS on issuance, assuming the company is QSBS eligible.

Cons:

• Expensive and time-consuming to negotiate and paper.

• High legal and compliance overhead for founders.

• Can slow down fast-moving deals.

Summary: Ideal when you’re leading the round. Best suited for larger checks, lead investors, or when a company is ready for substantial institutional investment.

V. ACA Model Convertible Promissory Note: The Angel-Optimized Option

Designed by the Angel Capital Association (ACA), this new version of a Model Convertible Promissory Note may be an ideal instrument for early-stage investing: not too founder or investor friendly, not too heavy-handed. It’s debt that converts into equity—like a regular note—but with clean, investor-friendly terms tailored specifically for early-stage investing.  It aligns with the Y Combinator Post-Money SAFE in that it is a post-money instrument and creates certainty around who bears the risk of future dilution. 

Pros:

• Includes interest and maturity—so there’s a clock.

• Built-in conversion mechanics with cap and discount.

• Standardized terms to avoid over-negotiation.

• Familiar to angels and founders alike.

• Post money conversion mechanics avoid uncertainty around future ownership percentage.

Cons:

• Still requires legal review and negotiation.

• Convertible = uncertainty on valuation until the next round.

• You’re not on the cap table until the conversion.

• Does not qualify for QSBS until conversion

Summary: Think of this as capturing the downside protection not available from a SAFE while retaining the certainty of ownership from the SAFE’s post-money feature.

The Verdict: The ACA Note Creates Paths to Prudence and Ambition.

Angel investing is already a high-risk game. You don’t need to make it riskier with instruments that don’t fairly distribute the risk between founders and investors or saddle deals with unnecessary legal complexity—because in early-stage investing, what you sign is as important as who you back.

The ACA Model Convertible Promissory Note may strike the right balance for most early-stage investors. It’s fast, fair, and protective. It converts when things go well and gives you leverage if they don’t. It's flexible for founders and smart for investors. It also removes the uncertainty of future ownership that pre-money converts create.

In early-stage investing, structure is strategy. Choose wisely.

Are you an entrepreneur seeking angel funding? Learn how to apply to pitch to the HBS Alumni Angels of Greater New York.

About the Author - Sharjeel Kashmir (PLDA 07), President & Screening Co-Chair, HBS Alumni Angels of Greater New York (see original post)

Sharjeel Kashmir invests in companies that have a hyper-focus on the customer and use innovation to disrupt the current landscape. He brings the unique perspective of having worked at leading investment banks, asset managers, commercial banks, retail banks, private equity firms, and innovative fintech startups. He currently serves as President of the Harvard Business School Alumni Angels of Greater NY (HBSAANY). Sharjeel has more than 25 years of experience working in financial services in the US, UK, Japan, Hong Kong, and Australia. He currently works as an advisor to investment banks and asset managers in NYC, focusing on transformational initiatives, deal sourcing, due diligence, and post-merger integration. Sharjeel has worked at or advised the world’s leading banks and asset managers including Goldman Sachs, JP Morgan, Bank of America, HSBC, Deutsche Bank, MUFG, SMBC, and ANZ. In addition, Sharjeel counsels the executive teams, CEOs, and boards of several early-stage companies on product strategy & development, capital structure, and the journey from negative to positive EBITDA. Sharjeel has been a member of the HBSAANY and served as co-chair of the screening committee since its inception. He is an avid art collector, enjoys golf and polo, and lives in New Jersey with his wife and son.

Are you an entrepreneur seeking angel funding? Learn how to apply to pitch to the HBS Alumni Angels of Greater New York.