Tip 1: SAFE Note Maturity Dates
Quick capital raising tips for Australian startup founders.
The Aussie Startup Capital Nerd is designed to give founders actionable tips and insights into capital raising based on my extensive experience and my daily conversations with founders and investors.
Normally, I write long in-depth articles, but they are time consuming me to produce and for readers to digest. To combat this, I decided to experiment with this new format of short digestible capital raising tips for founders.
Enjoy!
Tip 1: SAFE Note Maturity Dates
I’ve worked on a lot of SAFE and convertible note capital raises but in the last few months I started learning about a small detail that causes big problems for founders. A few founders that I spoke to didn’t enjoy their New Year because they had SAFE and convertible notes maturing on the 31st of December.
Convertible notes almost always have a maturity date whereas SAFE notes - occasionally have a maturity date.
A few years ago, when these startups were issuing their notes to investors, both the founders and investors didn’t think about the possible ramifications of setting a maturity date on the 31st of December (I know because I was one of them) but it is a big issue!
A maturity date in the note legal document may also be called a “Sunset Date” or “Optional Conversion Date”.
Why is it such a big issue? The end of the calendar year in Australia is a big event in finance because the markets effectively shut down from around Christmas (~24th December) until after the “Australia Day” public holiday (26th January). This creates two issues:
The Pre-Christmas Rush - From mid-November each year investors and founders start to get anxious that the Christmas holiday period shutdown is fast approaching and they try to jam through as many deals as they can before investors go on holidays. This results in a flurry of activity that means it will likely be hard to get the attention of investors, founders and support services like lawyers and accountants.
The Post-Christmas Blues - Once Christmas arrives, there is very little chance of getting a deal done until after the 26th January as investors are off skiing in Japan and employees all over Australia are enjoying the summer.
So, if you have to fight to get the attention of investors in the lead up to Christmas and you can’t get hold of them after Christmas then having a note maturing on the 31st of December is very very dangerous.
Learn about the differences between a SAFE note and a convertible note here. Also, here is a great 101 article on SAFE notes.
Smart investors may take advantage of this situation. Lazy and inexperienced investors will inadvertently wreak havoc on your holidays.
Trust me and the other founders who have been there before. You want to avoid this situation.
So, instead of setting your maturity date to the 31st of December, set it to 15th November or 1st March. If your investors push back then send them this article.
End of Financial Year Maturity Date
To a less catastrophic degree, having a maturity date set for the end of the financial year (30th June) will also cause trouble as investors, startups, accountants and lawyers are all pushing hard to meet deadlines linked to the end of financial year.
The 30th June is also an important date for note holders as ESIC qualification follows financial years and notes must convert to be able to claim ESIC. ESIC is important to pre-seed and seed angel investors so you must know what it is, if your company qualifies each financial year, meet the reporting requirements and cutoff dates as well as manage investor expectations.
The alternative to a 30th of June maturity date is to move it forward to something like the 31st of May as you still want it to be towards the end of the financial year for reporting and ESIC purposes.
Got a cap raising tip you want to share with founders?
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Hi - I’m Warwick Donaldson, the author of the Aussie Startup Capital Nerd.
I specialise in providing hands-on capital raising support services for the best Aussie startups (primarily DeepTech).
And I'm always representing the best interests of founders.
Over my career I’ve worked on 150+ startup fundraises, $50 billion in debt deals, founded three companies and have been the early hire at many scaling startups.
Contact me so we can see if it's a fit to discuss the most efficient capital strategy for you!
Disclaimer: Excentricity Pty Ltd, trading as CapXcentric (ABN 42 679 978 959, AFS Representative No. 001311296) is a Corporate Authorised Representative of True Oak Investments Pty Ltd (ABN 81 002558 956, AFSL 238184). The information provided in this article is intended for companies and startups and is not directed towards investors. Any statements or representations are general information only and do not take into account your personal objectives, financial situation or needs. Readers are advised to have regard to their own circumstances and consider seeking specific advice from a professional adviser before making any business decisions. No representations are made as to the accuracy, completeness, or reliability of any information provided in this article. Readers use the information provided at their own risk.