When you’re preparing to invest in a startup, it’s easy to feel overwhelmed by the stack of legal documents you’ll encounter. Below is a breakdown of the key paperwork you’re likely to see in two common types of funding rounds—Equity Rounds and SAFE/Convertible Rounds—along with a brief overview of each document from an investor’s perspective.

Equity Rounds

1. Subscription Agreement

A Subscription Agreement is the contract through which you, as an investor, agree to purchase a specific number of shares at an agreed-upon price.

• Key Points:
  • Outlines the amount you’re investing and the class of shares you’ll receive.
  • Confirms your investor status (e.g., sophisticated or wholesale investor) under Australian law, or relevant exemptions from any prospectus requirements.

2. Shareholders Agreement

A Shareholders Agreement governs the ongoing rights and obligations between all shareholders (including founders, existing investors, and new investors).

• Key Points:
  • Addresses voting rights, board composition, information rights, and exit scenarios.
  • May include protective provisions for investors, such as vetoes on certain corporate actions.

3. Side Letter

A Side Letter is an additional agreement granting specific investor rights not covered in the main documentation.

• Key Points:
  • Can cover special information rights, observer seats on the board, or extra protective clauses.
  • Must be consistent with (or clearly override) the main Shareholders Agreement to avoid confusion or legal conflict.

4. Waivers

A Waiver is a document in which existing shareholders or directors waive certain pre-emptive or approval rights for this new round of funding.

• Key Points:
  • Commonly used to waive a pre-emptive right to purchase new shares.
  • Ensures you can invest without violating existing shareholders’ contractual rights.

5. Resolutions of Directors

A Resolution of Directors authorises the issue of new shares or entry into certain agreements.

• Key Points:
  • Documents official consent by the board for the transaction.
  • Ensures compliance with the company’s constitution and the Corporations Act 2001 (Cth).

6. Resolutions of Shareholders (If Applicable)

Resolutions of Shareholders may be required if the company needs broader shareholder approval for a certain action.

• Key Points:
  • Typically used if changes to the constitution are needed or if the investment triggers rights that require majority or unanimous shareholder consent.
  • Not always mandatory—only comes into play when specific actions need approval under existing agreements or company law.

SAFE/Convertible Rounds

1. SAFE (Simple Agreement for Future Equity)

A SAFE is a contract where you invest money now in return for the right to obtain shares in the future.

• Key Points:
  • Postpones setting a formal valuation; your investment converts to equity at a later round (often at a discount or capped valuation).
  • Popular for early-stage deals because they simplify paperwork and lower legal costs compared to a priced equity round.

2. Subscription Agreement (Convertible Note Version)

If the company opts for Convertible Notes rather than a SAFE, you’ll typically sign a convertible Subscription Agreement.

• Key Points:
  • Functions similarly to an equity subscription but details the loan (principal, interest, conversion terms) that will convert into shares at a future event.
  • Outlines triggers for conversion (e.g., next equity financing) or, in some cases, repayment events.

3. Shareholders Agreement (If Applicable)

In some SAFE/convertible rounds—especially if a large investor is coming on board—there may be a Shareholders Agreement in place or updated.

• Key Points:
  • Not always mandatory at the time of signing a SAFE, but many companies still require signatories to acknowledge or join the existing Shareholders Agreement.
  • Often revisited or amended once the SAFE or note converts.

4. Side Letter

A Side Letter in a SAFE/convertible context may grant additional rights or clarify conversion scenarios.

• Key Points:
  • Could address valuation caps, pro-rata rights, or extra investor controls not found in standard SAFE templates.
  • Should align with future equity structures to avoid disputes at the time of conversion.

5. Waivers

Existing shareholders or noteholders may need to waive pre-emptive rights or notice requirements.

• Key Points:
  • Ensures the SAFE or convertible note can be issued without breaching prior agreements.
  • Keeps the cap table flexible for future fundraising.

6. Resolutions of Directors

A Resolution of Directors authorises issuing the SAFE or convertible notes.

• Key Points:
  • Validates the company’s decision to take on the new form of investment.
  • Protects both the startup and investors by demonstrating internal governance compliance.

Final Thoughts

Understanding each document helps you better negotiate the terms and protect your investment. Whether you’re participating in an equity round or a SAFE/convertible round, it’s crucial to review the paperwork with a keen eye—especially regarding ownership rights, governance, and exit provisions. If you need help deciphering or negotiating any of these documents, our team is here to provide tailored support.