A Simple Agreement for Future Equity (SAFE) is an increasingly popular way for Australian startups to raise capital. Y Combinator introduced it in the United States, and many startups have adopted an Australian version of the SAFE. It is an alternative to the more traditional equity raise (cash for shares) and has a similar form to a convertible note.

To help you understand how a SAFE operates, we have broken down its key terms below.

Investment or Purchase Amount

The investment or purchase amount is the amount of money the investor pays to the company upon entering into the SAFE. The SAFE will contain an obligation on the investor to pay this amount to the company immediately upon the execution date and will also sometimes specify the type or means of payment (e.g. a bank transfer).

Conversion Event

In return for their investment, the investor receives a contractual right to convert their investment money into shares in the company upon the occurrence of a conversion event. There are two main types of conversion events: a qualifying round and an exit event.

A qualifying round is an equity fundraising event (or series of events) by the Company with the primary purpose of raising capital. In short, it is the next round of traditional capital raising (not another SAFE round). At the qualifying round, the company will issues shares to the investor in return for their investment under the SAFE along with the other investors in that round.

An exit event encompasses a few different scenarios. It includes:

  • The sale of all or substantially all of the assets of the company (a business sale),
  • The sale of all or substantially all of the shares in the company (a share sale),
  • An initial public offering (IPO) on a recognised stock exchange; or
  • Anything else which has the effect of selling the business.

Generally, at an exit event, an investor will have the option to get their investment back or convert their investment into shares. The investor can then, as a shareholder, participate in the exit event along with all other shareholders.

Conversion Price

When a conversion event occurs, the investor will receive the number of shares equal to their initial investment divided by the conversion price. The conversion price at a qualifying round is generally the price per share at the time of the qualifying round multipled by a discount. At an exit event, the conversion price is generally the fair market value of the shares (and if the exit event is a share sale, the price per share connected with the share sale) multiplied by (1 minus the discount rate).

While a discount is not required, it is a very common feature of a SAFE. A discount rate of 15% means that the investor receives 15% more equity in the company than if they had been participating in the conversion event directly. A discount of between 10-20% is standard. As a SAFE is not a debt instrument (the investor may never get their money back if the company doesn’t reach a conversion event), it is considered riskier than a traditional equity investment. Therefore, the discount acts as a way to reward investors for taking the risk.

Valuation Cap

Some SAFE documents include a valuation cap. A valuation cap is essentially a pre-agreed valuation of the company. Often startups opt for a SAFE to avoid having to value the company. So, including a valuation cap can reduce the appeal of a SAFE. If there is an inclusion of a valuation cap at a qualifying round, the investor will either receive the number of shares calculated by the round price or by reference to the valuation cap, whichever is higher. This protects the SAFE investor from the company raising their next round at an overly high valuation and the investor essentially receiving very little for their investment.


A SAFE does not have an expiry date. It is drafted to terminate at the time the conversion of the investment into shares or when the company pays the investor back in full.  

Other Terms

The SAFE should contain many other operative terms, covering things such as:

  • What happens to the investor’s investment if the company goes into liquidation,
  • What rights does the investor have as a SAFE holder (essentially this is no shareholder rights),
  • Company and investor representations and warranties; and
  • Confidentiality protections.

Key Takeaways

There is no standard form SAFE that a company or investor must use under the law. For this reason, each SAFE has the potential to be very different. While you should expect to see the above terms in a standard SAFE you should carefully review your specific agreement. It is important to ensure that you understand how it operates and whether it reflects your understanding of the deal. If you have any questions or need to review or draft a SAFE for your company or investment, get in touch with LegalVision’s startup lawyers on 1300 544 755.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Madeleine Hunt
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy