SAFE, KISS, EPOS and Convertible Loans in Dutch Startup Financing

What foreign founders and investors should know before using simple financing instruments in a Dutch BV

Early-stage startup financing often needs to be fast, practical and cost-efficient. Founders may not want to negotiate a full equity round before the company has sufficient traction. Investors may want exposure to the company’s future equity upside without spending weeks on valuation, full shareholders’ rights and a complete investment agreement.

That is why simple financing instruments such as convertible loans, SAFEs, KISS instruments and Dutch SAFE-like instruments such as EPOS or ASAP are often used in pre-seed and seed financing.

For Dutch startups, however, the choice of instrument is not only a commercial decision. The instrument must also work within Dutch BV law, the articles of association, shareholder resolutions, pre-emption rights, notarial share issuance and future investment documentation.

This article gives foreign founders, international investors and counsel a practical overview of the main instruments used in Dutch startup financing. For a more detailed explanation of Dutch SAFE-like structures, see EPOS and ASAP for Dutch Startups: A SAFE-like Instrument for Dutch BV Financing.

This article is part of the broader ViottaLaw series on Dutch VC terms and Dutch BV structures, Dutch BV governance for US and international investors and convertible loan agreements in Dutch startup financing.

Why simple financing instruments are used

A full equity financing round requires negotiation on valuation, share class, investor rights, governance, liquidation preference, anti-dilution, information rights, founder vesting, leaver provisions and amendments to the articles of association.

In an early-stage round, that may be too heavy.

Simple financing instruments postpone part of that discussion. The investor provides money now, while conversion into shares takes place later, usually at the next qualified financing round, an exit or another agreed conversion event.

The main advantages are speed, lower transaction costs and postponement of the valuation discussion. The main risks are unclear conversion mechanics, future cap table complexity, mismatch with Dutch corporate law and friction with later institutional investment documentation.

For a Dutch BV, “simple” should therefore not mean “copied from a US template”. The instrument must be capable of being implemented under Dutch law.

Convertible loan

The convertible loan remains the most familiar instrument in the Dutch market.

The investor provides a loan that converts into shares at a later stage. The loan usually includes provisions on principal amount, interest, maturity, discount, valuation cap, conversion at a qualified financing round, conversion on exit and what happens on default or maturity.

For investors, a convertible loan offers more downside protection than a SAFE-like instrument. Until conversion, the investor generally has a claim against the company. That can be important if the next equity round does not happen.

For founders, a convertible loan can feel heavier. It may carry interest, a maturity date and possible repayment pressure. If the company does not raise a next round in time, the loan may create a negotiation problem.

A convertible loan is often appropriate where the investment amount is more substantial, the investor wants creditor protection or the parties prefer a recognisable Dutch financing instrument.

SAFE

SAFE stands for Simple Agreement for Future Equity. It was developed in the US startup market and is widely used in US pre-seed and seed financing.

Under a SAFE, an investor provides funding in exchange for a contractual right to receive shares in the future, usually at the next equity financing round. A SAFE typically has no interest and no fixed maturity date. That makes it simpler and more founder-friendly than a convertible loan.

For a Dutch BV, however, a SAFE cannot simply be copied from the US market.

Under Dutch law, the issuance of shares requires corporate approvals, compliance with or exclusion of pre-emption rights, alignment with the articles of association and execution by Dutch notarial deed. Conversion is therefore not purely automatic in the way US documents sometimes suggest.

Foreign investors should also check how the SAFE interacts with future preferred shares, liquidation preference, pro rata rights, investor consent rights and the Dutch shareholders’ agreement.

A SAFE may be commercially attractive, but it needs Dutch implementation language.

KISS

KISS stands for Keep It Simple Security. Like the SAFE, it comes from the US startup financing market. Depending on the version used, a KISS can resemble either a SAFE or a convertible loan.

Some KISS instruments include interest, maturity, MFN provisions, information rights or other investor protections. As a result, the instrument is not always as simple as the name suggests.

For Dutch startups, the main issue is whether the KISS is understandable for future investors and workable within a Dutch BV. If the document assumes US corporate mechanics, it may create problems at the next financing round.

A KISS can be useful, but foreign investors and founders should review carefully whether it fits the Dutch corporate structure and future financing plan.

EPOS and ASAP

EPOS stands for Easy Prepayment on Shares. ASAP is often used as shorthand for Agreement for Subscription Against Advance Payment.

Both are Dutch SAFE-like concepts. The investor pays now and receives a contractual right to future shares. The actual issuance of shares takes place later, usually at a qualified financing round, exit or other agreed conversion event.

The instrument is usually not structured as a traditional loan. There is typically no interest and no fixed repayment date. This makes it attractive for founders who want to avoid debt pressure in an early-stage financing.

For investors, the key question is whether the instrument gives enough protection before conversion. Unlike a convertible loan, an EPOS or ASAP may not give the investor a normal repayment claim. The investor’s position depends heavily on the conversion triggers, valuation cap, discount, information rights and fallback scenarios.

EPOS and ASAP instruments can be useful where parties want the commercial simplicity of a SAFE but need better alignment with Dutch BV mechanics. For a deeper explanation, see EPOS and ASAP for Dutch Startups: A SAFE-like Instrument for Dutch BV Financing.

What is different in the Netherlands?

The main difference for foreign founders and investors is that Dutch BV shares are not issued automatically by contract alone.

A future conversion into shares usually requires:

• corporate authorisation, often by shareholder resolution;
• treatment of statutory or contractual pre-emption rights;
• articles of association that allow the relevant share class;
• execution of a Dutch notarial deed of issuance;
• alignment with the shareholders’ agreement;
• coordination with the terms of the next equity round.

This matters for all instruments: SAFE, KISS, EPOS, ASAP and convertible loans.

A document may say that the instrument “automatically converts”, but under Dutch law the corporate implementation still needs to happen. If that is not properly addressed, the instrument can cause delay or disagreement when the next round is being completed.

Foreign investors should therefore look not only at the economic conversion formula, but also at the Dutch corporate steps required to make conversion legally effective.

Which instrument is usually best?

There is no single best instrument. The right choice depends on the company, the stage, the investment amount, the investor’s risk appetite and the expected next financing round.

A convertible loan is often more suitable where the investor wants downside protection, the amount is relatively large or the company is already more advanced. It is also more familiar in the Dutch market.

A SAFE or EPOS/ASAP can work well in a fast pre-seed or seed round where the parties want to postpone the valuation discussion and avoid debt pressure for the company.

A KISS may be useful where parties want a hybrid between a SAFE-like instrument and a more protective investment instrument, but the terms should be checked carefully.

The most important question is not which document is shortest. The important question is whether the instrument works at conversion, at the next financing round and at exit.

Practical issues for founders

Founders should avoid creating unnecessary cap table complexity.

Multiple SAFE-like instruments with different valuation caps, discounts, side letters or special rights can create problems in a later seed or Series A round. Institutional investors will want to understand exactly who converts, at what price, into which share class and with which rights.

Founders should also consider dilution. A SAFE-like instrument may look simple when signed, but the economic impact becomes clear only at conversion. If several instruments convert at the same round, the founder dilution can be more significant than expected.

Finally, founders should make sure that the instrument does not conflict with existing shareholders’ rights, employee participation plans or future investment documents.

Practical issues for investors

Investors should focus on the position before conversion.

Under a convertible loan, the investor normally has a claim against the company until conversion. Under a SAFE, EPOS or ASAP, that may not be the case. The investor may mainly have a contractual right to future shares.

Investors should therefore check:

• the conversion trigger;
• the valuation cap;
• the discount;
• what happens on exit before conversion;
• what happens if no qualified financing occurs;
• whether there are information rights;
• whether existing shareholders must cooperate with conversion;
• which share class will be issued;
• whether the investor receives ordinary shares or the same class as new investors;
• how the instrument ranks in insolvency.

A simple instrument is only useful if the investor understands the risk taken before conversion.

Interaction with future VC rounds

Simple financing instruments should be drafted with the next financing round in mind.

A later institutional investor will usually want a clean cap table, clear conversion mechanics and no hidden side rights. If the existing instruments are inconsistent, unclear or difficult to implement, they may delay the round.

The document should therefore explain how the conversion price is calculated, whether conversion takes place before or after the new money investment, which share class is issued and how the discount or valuation cap works.

If future preferred shares are expected, the instrument should address whether the holder receives the same preferred shares, ordinary shares or an economically equivalent position.

This is especially important for international investors who are used to US or UK financing mechanics. Those concepts can often be implemented in a Dutch BV, but they must be translated carefully.

Practical drafting points

A good early-stage financing instrument for a Dutch BV should address at least the following points:

• investment amount;
• instrument type;
• conversion trigger;
• valuation cap;
• discount;
• qualified financing threshold;
• treatment of exit before conversion;
• fallback if no qualified financing occurs;
• information rights;
• pre-emption rights;
• corporate approvals;
• notarial issuance of shares;
• share class on conversion;
• interaction with future shareholders’ agreement;
• investor rights after conversion;
• tax and accounting coordination where relevant.

The document should remain practical, but not so short that the key Dutch implementation points are missing.

Conclusion

SAFE, KISS, EPOS, ASAP and convertible loans can all be useful in Dutch startup financing. They allow founders and investors to move quickly and postpone part of the valuation discussion.

But in the Netherlands, simple financing instruments must be aligned with Dutch BV mechanics. Share issuance requires corporate approvals, treatment of pre-emption rights, articles of association and Dutch notarial implementation.

For foreign founders and investors, the practical lesson is clear: do not choose the instrument only because it is familiar from the US or UK market. Choose the instrument that works for the Dutch BV, the next financing round and the long-term cap table.

FAQ

Can a US SAFE be used for a Dutch BV?

A US SAFE should not be used without adaptation. Dutch BV share issuance requires corporate approvals, treatment of pre-emption rights, alignment with the articles of association and notarial implementation.

What is the difference between a SAFE and a convertible loan?

A convertible loan is a debt instrument that may convert into shares. A SAFE is usually not structured as a traditional loan and typically has no interest or maturity date.

What are EPOS and ASAP?

EPOS and ASAP are Dutch SAFE-like instruments. The investor pays now and receives a contractual right to future shares, usually upon a qualified financing round, exit or other agreed conversion event.

Which instrument is most common in the Netherlands?

Convertible loans remain the most familiar instrument in the Dutch market. SAFE-like instruments are increasingly discussed, especially in internationally oriented startup financings.

What is the main Dutch legal issue?

The main issue is implementation. A contractual right to receive shares must be capable of being implemented through Dutch corporate approvals, pre-emption rights, articles of association and notarial share issuance.

About Dirk de Waard

Dirk de Waard is a Dutch corporate and M&A lawyer and partner at Venture Lawyers in Amsterdam. He advises founders, startups, scale-ups, investors and private capital parties on venture capital, startup financing, convertible loans, SAFE-like instruments, shareholder arrangements, governance and Dutch BV deal implementation.

Structuring a Dutch startup financing?

A simple financing instrument should not only be easy to sign. It must also work at conversion, follow-on financing and exit.

Dirk de Waard advises founders, investors and scale-ups on SAFEs, KISS, EPOS, ASAP, convertible loans, bridge financings and conversion into shares in Dutch BVs. Contact Dirk at dirk.dewaard@viottalaw.com to discuss an early-stage investment or financing instrument.