Simple Agreement Template for Future Equity – Australia

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A Simple Agreement for Future Equity (SAFE) is a relatively new type of agreement that is commonly used by startups. With this deal, investors can make a cash payment to small businesses that allows them to buy shares when a pre-arranged event occurs.

It is an innovative and flexible agreement which offers all parties adequate guarantees. Find out what you need to know about this document and how to find free SAFE templates that you can customize to meet your needs.

Also known as SAFE, the Simple Agreement for Future Equity is a form of convertible security designed for small businesses, such as startups, that intend to raise capital.

It is a flexible arrangement between an investor and a company, which locks in an investment when an event occurs – usually a capital increase.

Download this template from Lawpath

You should consider this type of agreement if:

  • You are a small business or a new business (such as a startup), looking for an investment
  • You are not looking for a loan or a quick way to generate income
  • You are an investor and you want to acquire rights to the shares of a certain company when it reaches a specific stage.

SAFEs generally require quick and flexible negotiation. The company and the investor do not need to choose a deadline and the triggering event may never occur. The agreement is governed by the laws on legal persons and does not generate any interest.

Convertible notes may require more complex negotiation to choose the length of the loan and its interest. The note has a maturity date, which is when the loan must be repaid or converted into equity at a predetermined rate.

What does a simple future equity agreement include and not understand?

Usually included

  • Detailed information on the company and the investor.
  • The amount of money exchange.
  • Conversion terms, which are the specific conditions by which the amount invested is converted into equity.
  • The trigger event, as a result of which the investor will get their money back or receive shares of the company.
  • Redemption rights, which allow the company to buy back the right to capital if necessary.
  • Dissolution rights indicating what happens to the money if the business is dissolved.

Usually not included

  • The deadline for the money to be returned or converted into shares, as SAFEs never expire.
  • Interest rate, which do not apply to this type of agreement.
  • Information on the minimum amount of funds to be raised during equity financing, as this is not included in this type of agreement.

SAFEs have no interest rate or maturity date. Most importantly, these agreements are very flexible. When the pre-arranged event occurs, the investor can either convert the amount into shares or get their money back.

From a business point of view, this allows them to delay the valuation of their business. In the event of insolvency before the triggering event, the cash is automatically converted into shares and the company agrees to pay the investor before making any payment to its shareholders. This is what differentiates SAFE from normal debt.

Before writing and signing a SAFE memo, the business and investor should determine if this is an appropriate deal for their future success.

It is essential that all parties understand the chosen trigger events and how this will affect the cash payment. While it is not mandatory to seek the help of a lawyer, professional advice can help make the important call to whether a SAFE rating or loan is more appropriate under the circumstances.

The easiest way is to use a simple agreement for the future equity model. When preparing for your agreement, it is essential to choose a trigger event, which will result in the return of the payment in cash or its conversion into shares.

Whether you are the investor or the business, you need to understand the criteria and implications of a SAFE, which are not the same as with your average loan. For this reason, it is important to draft the agreement according to the needs and circumstances of both parties.

  • Right Path. The website provides a convertible form that can be personalized with your contact details.
  • Zegal. Although this form is not free, it has other advantages such as the possibility of being downloaded in several different languages.
  • The Australian Investment Council (AIC) provides an example of a SAFE note template, which can be used to write your own chord.

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