The SAFE (Simple Agreement for Future Equity) Agreement has become increasingly popular in the Australian startup ecosystem as a streamlined investment instrument for early-stage companies. Originally developed by Y Combinator but adapted for Australian legal requirements, this agreement provides a balanced solution for companies seeking capital without immediately setting a valuation or issuing equity. The document is particularly useful for pre-seed and seed funding rounds, where traditional equity rounds might be premature or impractical. It includes essential provisions compliant with Australian corporate law, including sophisticated investor requirements under the Corporations Act 2001, and typically features a valuation cap and/or discount rate for future conversion events. The SAFE Agreement helps companies avoid the complexity and immediate dilution of equity rounds while providing investors with clear rights to future equity.
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1. Parties: Identifies the company and the investor(s) entering into the SAFE agreement
2. Background: Explains the context of the agreement, including the company's intention to raise capital and the investor's desire to invest
3. Definitions: Defines key terms used throughout the agreement, including 'Valuation Cap', 'Discount Rate', 'Equity Financing', and 'Liquidity Event'
4. Investment Amount: Specifies the amount being invested and payment terms
5. Conversion Events: Details the circumstances that trigger conversion of the SAFE into equity, including equity financing, liquidity events, and dissolution events
6. Conversion Mechanics: Explains how the investment converts into equity, including calculation methods and price determination
7. Company Representations: Company's warranties regarding its authority, corporate status, and capacity to enter the agreement
8. Investor Representations: Investor's warranties regarding their sophistication, understanding of risks, and capacity to invest
9. Information Rights: Outlines what company information the investor is entitled to receive
10. General Provisions: Standard legal provisions including notices, amendments, assignment, governing law, and dispute resolution
1. Most Favored Nation: Provision ensuring the investor receives the benefit of more favorable terms offered to subsequent investors
2. Pro-rata Rights: Gives the investor the right to participate in future funding rounds to maintain their ownership percentage
3. Board Observer Rights: Grants the investor the right to attend and observe board meetings
4. Participation Rights: Details any special rights to participate in future investment rounds
5. Confidentiality Provisions: Additional confidentiality obligations beyond standard terms
6. Tax Provisions: Specific tax-related terms and obligations, particularly relevant for international investors
1. Schedule 1 - Calculation of Conversion Shares: Detailed formulas and examples of how the investment amount converts into shares under different scenarios
2. Schedule 2 - Cap Table: Current capitalization table of the company
3. Schedule 3 - Required Information: List of information and reporting requirements the company must provide to the investor
4. Schedule 4 - Subscription Form: Form detailing the investment amount and investor details
5. Schedule 5 - Sophisticated Investor Certificate: Certificate confirming the investor meets sophisticated/wholesale investor requirements under Australian law
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Safe Equity Agreement
An Australian-compliant SAFE Agreement that provides investors with rights to future equity in a company, structured as a simplified alternative to convertible notes.
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