Australian translation of Y-Combinator's Simple Agreement for Future Equity (SAFE)

We were recently asked to take a look at Y Combinator’s Simple Agreement for Future Equity ("SAFE") for Sparrow Flights, one of our clients and a great new startup based in Sydney.

The SAFE is a fantastic instrument released by Y Combinator to, as much as possible, replace convertible notes. It was prepared by James Riley at Goodwin Proctor. In Y Combinator's own words:

The safe (simple agreement for future equity) is intended to replace convertible notes in most cases, and we think it addresses many of the problems with convertible notes while preserving their flexibility.
An investor makes a cash investment in a company, but gets company stock at a later date, in connection with a specific event. A safe is not a debt instrument, but is intended to be an alternative to convertible notes that is beneficial for both companies and investors.

In our experience at Viridian Lawyers, convertible notes (and related instruments) have had midling uptake in Australia. They are used only occasionally, and even then, usually as bridging finance shortly before a "real" round. In this respect (and a few others), we're lagging behind the rest of the world; fixed size, multi-investor angel rounds are an exhausting way for an early stage startup to raise funding.

The SAFE is a very compelling instrument for startups and investors for exactly this reason, and we think it has a lot of value for the Australian ecosystem. Some key advantages of "future equity" instruments include the ability to:

  1. avoid fundraising deadlocks;
  2. close funding rounds faster, and with less back and forth;
  3. offer higher discount rates to high value or early investors;
  4. avoid premature valuation, or non-sense valuations, of great but early stage businesses.

In translating the SAFE for use in Australia, one of the goals of the exercise was to change as little as possible.

Any changes that we make to the SAFE would be at the expense of consistency, and at the potential expense of industry acceptance. Too many changes would open the door to further amendment and negotiation - and that defeats the purpose of these documents. These documents are standard, a standard that is supported by Y Combinator's reputation. The role the SAFE serves is to set a base line that can be agreed upon broadly, and that standard has now been imported into Australia.

We believe that an Australian startup can now have a multiple SAFEs on their books with investors in Australia and the US, and for nearly all intents an purposes, treat those relationships as functionally the same.

For these reasons, we like to think that as much as possible, this is not a Viridian Lawyers document, this is a Y Combinator document, we just helped it along.

You can find each localised document below:

  1. Safe: Cap, no Discount
  2. Safe: Discount, no Cap
  3. Safe: Cap and Discount
  4. Safe: MFN, no Cap, no Discount

A copy of the original SAFEs can be found at Y Combinator's website, and the SAFE Primer document can be found here.


You should also know that these documents are provided without any warranty, express or implied, to the fullest extent possible.

Because Viridian Lawyers hasn't had the opportunity to meet with you and discuss your needs, this document should not be considered legal advice, or advice specific to your circumstances.

Please read these documents very carefully before using them. We suggest that you seek professional legal advice to assist with implementing these documents.

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Jamie Larson