Last Updated on 25/09/2025 by Damin Murdock
Raising capital is one of the most pressing challenges for startups, especially in the early stages when valuation is uncertain. One solution that has gained traction globally, increasingly in Australia, is the Simple Agreement for Future Equity (SAFE). This article explains what a SAFE is, how it operates in the Australian legal and regulatory landscape, and the advantages and risks for both founders and investors.
What Is a SAFE?
A SAFE is a contract between a startup and an investor in which the investor provides capital today in exchange for a right to receive equity in the company in the future, usually when a priced funding round occurs or other triggering events like a sale or IPO.
Originally developed by Y Combinator in the United States, SAFEs are not debt instruments (like convertible notes) and generally do not accrue interest or enable the investor to elect to redeem their investment. Instead, they are designed to be simple, founder-friendly tools that delay complex negotiations about valuation until a future event.
How Do SAFEs Work in Australia?
While SAFEs are not explicitly defined under Australian corporate or securities law, they are increasingly being used by startups and angel investors. Their enforceability and structure in Australia depend on how the agreement is drafted and how it complies with key areas of Australian law, including the following matters.
1. Corporations Act 2001 (Cth) Compliance
Under the Corporations Act 2001 (Cth) (the Act), offering SAFEs to investors may trigger disclosure obligations if the offer does not qualify for an exemption (e.g., small-scale offerings or sophisticated investor exemptions). If you are unaware of these exemptions, refer to section 708 of the Act. Further, SAFEs may inadvertently become a financial produce regulated by ASIC, for instance, where a series of SAFEs are considered a managed scheme.
2. Equity Conversion Mechanics
Typically, the SAFE will convert into shares at a discount or be subject to a valuation cap once a qualifying round occurs. To avoid disputes, careful drafting is necessary in defining what constitutions “equity financing”, and what are the terms when the investment converts into shares, for instance does it convert before the closing of the next equity financing round, is there a discount rate applied, or whether a valuation cap is agreed. Additional important aspects is determining when the investment will convert into shares, for instance is the company commits an act of insolvency, and what class of shares the investor will be given if a constitution does not clearly define the meaning of that class of shares.
3. Tax Implications
Australian investors and founders must consider how the Australian Taxation Office (ATO) will treat SAFEs. Since they do not immediately result in equity or interest-bearing debt, there may be uncertainty regarding when tax obligations arise for the investor, or how the value of the converted equity is assessed.
Professional tax advice is recommended to avoid unintended tax consequences.
4. ASIC’s Regulatory Perspective
The Australian Securities and Investments Commission (ASIC) has not yet issued specific guidance on SAFEs. However, ASIC may scrutinise SAFEs to determine whether they amount to managed investment schemes or involve misleading conduct under the Australian Consumer Law.
Benefits of SAFEs
Ultimately, the benefits of a SAFE is to avoid lengthy negotiations about valuation and complex shareholder arrangements, not to grant voting rights until conversion enabling the founders to have more control during the early stages, and finally, the costs to prepare a SAFE is significantly less than preparing a convertible note or completing a proper equity round.
Risks and Considerations
Since SAFEs are relatively new, there is only limited case law on the operations regarding SAFEs, and there is no specific laws that govern the operations of a SAFE. This means a SAFE will be treated like any other contract, making the terms and conditions needing to be carefully scrutinised prior to execution. Further, there are serious risks for startups and founders if they miscalculation the valuation cap, the discount rate, or the dilution effect once the SAFE converts to shares.
Best Practices for SAFEs in Australia
If you are considering a SAFE, we recommend you engage a lawyer to review the terms, even if it is a template authored by a respected organisation. This is because disputes often arise from the variables that are inserted into these templates such as the discount rate, valuation cap or possibly having no maturity date or conversion date, resulting in a SAFE having no mechanism for conversion. Further, often times open sourced documents are either investor friendly, or startup friendly, and if you are on the other side, then you may be using an inappropriate SAFE to protect your interests.
Key Take Aways
SAFEs can be powerful tools for early-stage fundraising in Australia, but they are not without risk. Their successful use depends on careful legal drafting, strategic tax planning, and compliance with Australian corporate laws.
Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube , LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.
DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.
Damin Murdock (J.D | LL.M | BACS - Finance) is a seasoned commercial lawyer with over 17 years of experience, recognised as a trusted legal advisor and courtroom advocate who has built a formidable reputation for delivering strategic legal solutions across corporate, commercial, construction, and technology law. He has held senior leadership positions, including director of a national Australian law firm, principal lawyer of MurdockCheng Legal Practice, and Chief Legal Officer of Lawpath, Australia's largest legal technology platform. Throughout his career, Damin has personally advised more than 2,000 startups and SMEs, earning over 300 five-star reviews from satisfied clients who value his clear communication, commercial pragmatism, and in-depth legal knowledge. As an established legal thought leader, he has hosted over 100 webinars and legal videos that have attracted tens of thousands of views, reinforcing his trusted authority in both legal and business communities."
