For startups, how safe are SAFE notes, really?
A flexible and fast way to raise money, Australian startups are using SAFE notes more than ever before. But their increasing use could cause financial and legal headaches, according to new analysis.
In a challenging market for funding in 2023, 'SAFE' notes emerged as a popular financing instrument for Australian startups seeking a flexible and fast way to raise capital. But commercial lawyers are warning founders that the use of Simple Agreements for Future Equity is not without risks.
The third annual State of Australian Startup Funding Report by Cut Through Venture and Folklore Ventures, published Tuesday, showed a 44% increase in the use of SAFE notes last year.
According to research by law firm Corrs Chambers Westgarth, which supported the report's production along with KPMG and HSBC, only 8% of Australian startups had SAFEs on issue in 2018, compared with 44% in 2023.
The law firm's analysis found three main funding trends in 2023: the increasing use of SAFEs, more investor-friendly deal terms and an uplift in foreign investment into Australian startups.
