Is a convertible note the only option to raise capital while deferring valuation?

No – SAFE (Simple Agree for Future Equity) and KISS (Keep it Simple Security) docs are attractive options.

SAFE docs are short 5 page documents with very little to negotiate (just the valuation caps). Therefore, startups and investors won’t have to spend a lot of time and legal fees on hammering out the details of a safe. A SAFE is not a debt instrument, so it doesn’t accrue interest or have a maturity date (so it might not convert to equity at all). SAFEs are also only about 2 years old, created by Y Combinator in Dec. 2013. Accordingly, angel investors, VC’s and attorneys often have less experience and trust in using a SAFE over something more established, like a convertible note.

A KISS is similar to a SAFE in that they both are short and sweet funding documents created in order to make things easier for both sides. They are designed to be flexible, simple, and balanced from both the standpoint of the company and investor. There are two types of KISS agreements: a debt version and an equity version. A KISS is known as being more investor friendly than a SAFE, which is known for being more founder friendly.

If you have more specific questions regarding convertible debt, SAFE or KISS, you should check out LawTrades. The experienced startup attorneys on our site can help you pick the right funding doc for your company. We offer free initial consultations and start to finish project management. You can also feel free to message me directly with any questions you have. Hope that helps!