TEN13 is a Brisbane-based Australian venture capital syndicate founded in 2019 by Stew Glynn and Steve Baxter. This article is the transcript and companion reference for Flight Club #3 - Navigating Venture Terms, the third session in TEN13's investor education series, presented by Partner An Vo and Managing Partner Stew Glynn. It covers the two main ways early-stage investors put capital into a startup - SAFEs/convertible notes and priced equity rounds - how SAFE conversion mechanics actually work, the core legal documents that govern a funding round, and the negotiation pitfalls and protections angel investors should understand before writing a cheque.
Why Venture Terms Matter: Know What You're Buying
TEN13 invests first cheques of A$300,000 to A$2 million at pre-seed and seed stage in technology companies across Australia, New Zealand and globally. Since 2019, TEN13 has invested across 51 companies and 83 investment rounds - a mix of 48 priced equity rounds, 30 SAFEs (Simple Agreements for Future Equity) and 5 convertible notes, deploying over $100 million in the process.
Partner An Vo opened the session with a reminder that venture investing is fundamentally different from buying shares in a listed company: every deal is a bespoke, heavily negotiated private transaction. In many cases, no deal is better than a bad deal made without understanding what's actually being bought, what protections exist, and what the realistic payoff looks like.
No deal is better than a bad deal. - Chris Voss, Author, "Never Split the Difference"
As an angel investor, four things should be front of mind before any investment:
- What am I buying? - the deal terms: valuation, share type, downside protection, investment structure, company domicile, and eligibility for tax incentives like the Early Stage Innovation Company (ESIC) offset.
- Can I limit dilution? - do you have pro rata or preemptive rights to continue investing in future rounds if the company performs well?
- What information access do I get? - line of sight to management and regular updates on company performance.
- Where do I sit if things go wrong? - your position in the capital stack and what protections you hold in a downside scenario.
Two Main Investment Structures
Early-stage investments are generally made through one of two structures: a convertible instrument (a SAFE or convertible note), or a priced round, where you buy actual securities - shares or stock - at an agreed valuation.
SAFEs: Simple Agreements for Future Equity
A SAFE is a contractual agreement between a startup and an investor that exchanges the investor's cash for a right to future equity - generally preferred shares - upon a triggering event, usually the company's next priced funding round. Introduced by Y Combinator in 2013, SAFEs were designed to be a standardised, low-cost alternative to full equity documentation, particularly for the earliest funding rounds.
A SAFE is not debt and not quite equity - it's a hybrid instrument. Unlike a convertible note, a standard SAFE has no interest and no maturity date. What it does have is a purchase amount, and typically one or both of a discount and a valuation cap (which can be set on a pre-money or post-money basis) - the mechanisms that determine the price at which the SAFE eventually converts into shares.
Why SAFEs are popular
SAFEs are fast, cheap, and well understood by both the venture capital and angel investing markets. In the US, Y Combinator's standard SAFE templates are downloadable and highly standardised, meaning investors and founders can rely on well-established terms with minimal legal review. In Australia, SAFEs are far less standardised - multiple industry groups and law firms have worked to create common templates, but in practice several different versions circulate, meaning legal advice is typically still required.
Common pitfalls with SAFEs
| Pitfall | Why it matters |
|---|---|
| Unclear share count at conversion | You don't know exactly how many shares you'll receive until the SAFE actually converts - the cap sets a ceiling on price, but there's no floor, so you could end up paying much less (i.e. owning much more) than expected, or vice versa depending on structure. |
| "SAFE stacking" | Companies that raise multiple SAFE rounds with different discounts and valuation caps can create dilution that's very difficult for founders (and investors) to fully understand until conversion. TEN13 has seen companies with over 20 different SAFEs on issue, each with different terms. |
| Uncapped SAFEs | A SAFE with only a discount and no valuation cap means an early investor's eventual ownership is tied to the price of a future round, however high that round prices the company - meaning an investor who took on early-stage risk may not be compensated for it. TEN13 generally avoids uncapped SAFEs and looks for a capped SAFE, with a discount where possible, typically at seed-stage valuations of roughly $3-15 million. |
| ESIC tax treatment | Australia's Early Stage Innovation Company tax offset generally requires actual share ownership. Because a SAFE holder doesn't own shares until conversion (which may be a year or more away), they may not qualify for ESIC tax benefits during the period they hold the SAFE. |
Side letters: getting rights a SAFE doesn't provide
Because SAFEs are deliberately light documents covering little beyond price, TEN13 typically negotiates a companion side letter alongside most SAFE investments, seeking rights such as:
- Information rights - ongoing visibility into company performance.
- Pro rata / follow-on rights - the ability to continue investing in future rounds to avoid dilution.
- Most Favoured Nation (MFN) clauses - if the company later raises on more favourable terms (e.g. a lower valuation) than your SAFE, an MFN clause repriced your SAFE to match the better terms - a meaningful protection against a company offering a "sweetheart deal" to a later investor.
How a SAFE actually converts: a worked example
The example below uses a SAFE with a post-money valuation cap of $10 million and a 20% discount - protection on both sides.
| Down round ($5m valuation) | Up round ($20m valuation) | |
|---|---|---|
| $10m post-money valuation cap | Doesn't come into effect | SAFE converts at $10m valuation cap |
| 20% discount | SAFE converts at ~$4m valuation | Doesn't come into effect |
The SAFE always converts using whichever mechanism is more favourable to the investor. In a down round (the next priced round values the company lower than expected - roughly 20-30% of current funding rounds are down rounds, per the session), the 20% discount applies to that lower $5m valuation, meaning the SAFE converts at approximately $4 million - a materially better price than the $10m cap, but also materially more dilutive to the company's founders and other shareholders than anyone anticipated. In an up round ($20m valuation), the $10m cap acts as a ceiling, so the SAFE converts at $10m rather than a 20%-discounted $16m. This asymmetry is exactly why founders sometimes don't fully understand the dilution a SAFE can create until it actually converts.
Convertible Notes
A convertible note is a debt instrument that converts into equity, and was more commonly used before SAFEs became widespread - only 5 of TEN13's 83 investment rounds have been via convertible notes. Like a SAFE, a note typically carries a valuation cap and/or discount, but the material differences are:
- Interest-bearing - a convertible note carries a coupon rate, typically above prevailing bank rates, because it is legally structured as debt and sits ahead of equity in the capital stack.
- Maturity date - a fixed date by which the note must either convert to equity or be repaid.
Convertible notes are often used as a bridging instrument - an extension of a company's last round when founders don't want to formally set a new (potentially lower) valuation. One investor caution: interest accrued on a convertible note is typically converted into additional equity rather than paid out in cash, but that accrued interest can still be a taxable event even though no cash changes hands.
Priced Rounds: Buying Actual Equity
A priced round - roughly 60% of TEN13's deal activity - is exactly what it sounds like: shares (or in the US, stock) are purchased at an agreed price, giving the investor clear, immediate ownership and much stronger rights and protections than a SAFE or note. Ownership is precisely defined via the company's capitalisation table ("cap table").
The tradeoff is complexity and cost. A priced round typically involves three to seven legal documents - though TEN13 has seen seed rounds requiring as many as twenty separate documents - making the process more expensive and time-consuming for both the company and its investors than a SAFE. In the US, priced rounds commonly follow templates from the National Venture Capital Association (NVCA); in Australia, the Australian Investment Council (AIC) has published a broadly similar standardised template. In both markets, every set of documents still gets individually negotiated.
Case Study: Mr Yum's (Now Me&u) Funding Journey
TEN13 used Mr Yum - a QR-code restaurant ordering platform that later merged with its largest competitor to become Me&u - to illustrate how a real company typically moves through multiple structures and rounds on its way to scale.
| Stage | Date | Structure | What happened |
|---|---|---|---|
| Pre-seed | Before 2020 | Multiple SAFE rounds | Family-and-friends funding to build and test an MVP; more than a dozen separate SAFEs were raised on varying terms over time |
| Seed | May 2020 | Priced equity round | TEN13 enters as the company shows early customer traction; existing SAFEs convert into shares as part of this round |
| Post-seed | April 2021 | Priced equity round | TEN13 increases its position as the company demonstrates rapid early revenue growth |
| Series A | November 2021 | Priced equity round | An international VC leads a Series A round roughly six months after the post-seed round, as growth accelerates further |
The Mr Yum journey illustrates a common pattern: multiple, often messy early SAFE rounds on inconsistent terms, converting together into a single, clean cap table at the first priced round - after which subsequent rounds become progressively more formal and better documented as the company matures.
Lead vs. Follow: Who Sets the Terms?
In any funding round, one investor typically takes the lead role - generally the most sophisticated investor and usually the largest cheque in the round - and sets the deal terms, driving legal documentation and due diligence. Other participants are follow or following investors, who sit behind the lead, contribute on points that matter specifically to them, and generally accept the rest of the negotiated terms rather than negotiating from scratch themselves. TEN13 frequently plays a lead role in its deals.
The Core Legal Documents in a Priced Round
An Australian priced equity round is typically built around a non-binding term sheet followed by two central binding documents, plus a set of supporting agreements.
Term sheet
A non-binding, indicative document that establishes the proposed terms of an investment and forms the basis for all subsequent legal documentation. Key elements typically include:
| Category | What it covers |
|---|---|
| Investment amount & ownership | How much is being invested and the resulting ownership percentage |
| Round size | Minimum and maximum round size |
| Valuation & cap table | The agreed pre-money valuation and resulting ownership structure |
| Class of shares | Including liquidation preference terms |
| ESOP | Whether the employee option pool will be topped up as part of the round |
| Governance | Board structure, board seats and observer rights |
| Rights | Pro rata, information rights, anti-dilution protection |
| Exclusivity / confidentiality | A period during which the company agrees not to shop the deal to other investors |
| Timeframes and duration | Key dates for the round to close |
| Founder vesting | Protection if a founder leaves the business |
| Conditions precedent | Steps that must occur before the deal can close, e.g. IP assignment to the company |
Once a term sheet is signed, both sides are generally exclusive on that deal for a set period while long-form legal documentation is negotiated. It's very difficult to change fundamental terms after a term sheet has been signed, which is why TEN13 encourages founders to get legal advice before signing, not after.
Shareholders' Agreement (or Shareholders' Deed)
The central document governing control and decision-making within the company, and shareholder protections generally.
| Category | What it covers |
|---|---|
| Governance | Decision-making authority split between the board and shareholders |
| Information rights | What financial and operational information shareholders are entitled to receive |
| Restrictions on disposal and issue | Limits on transferring or issuing new shares |
| Pro rata rights | The right to participate in future rounds to maintain ownership percentage |
| ESOP | Terms of the employee share option pool |
| Permitted disposals | Circumstances under which shares can be transferred |
| Drag-along / tag-along rights | Mechanisms that align minority and majority shareholders in a sale process |
| Founder vesting | Vesting schedules protecting the company if a founder departs early |
| Bad leaver arrangements | Consequences if a founder or key person leaves under unfavourable circumstances |
| Restraints | Non-compete and related restrictions |
Subscription Agreement
The transaction document that sets out the actual mechanics of the share purchase, including warranties and indemnities - the investor's key protection if information provided during due diligence turns out to be inaccurate or fraudulent.
| Category | What it covers |
|---|---|
| Who is issuing the shares | The company |
| Who is purchasing the shares | The investor |
| Share count and class | How many shares, and what class (e.g. ordinary vs. seed preference) |
| Subscription price | The agreed price per share |
| Closing mechanics | When and how the company will actually issue the shares |
| Representations & warranties | Company (and sometimes founder) confirmations about the accuracy of information disclosed during due diligence, giving investors recourse - typically their capital plus legal costs - if that information proves false |
Constitution
A formal set of rules governing a company's internal management, including the appointment, powers and removal of directors; the organisation of director and shareholder meetings; share class terms including liquidation preferences; and anti-dilution provisions. Where the constitution conflicts with the shareholders' agreement, the shareholders' agreement generally takes precedence.
Other common supporting documents
Depending on the round, additional documents may include employment agreements, IP assignment deeds (confirming founders have assigned their IP to the company), disclosure letters, ESOP plans, put options, and side letters granting specific investors additional rights beyond the standard document suite.
Example Capital Structure: Where You Sit Matters
As a company raises multiple rounds over time, it typically ends up with several layers in its capital structure - illustrated here from the bottom (lowest priority in a downside scenario) to the top (highest priority):
| Layer (lowest to highest priority) | Notes |
|---|---|
| Ordinary shares (founder shares) | Lowest priority - founders and early team members are generally paid last |
| Series Seed preference shares | Ranks ahead of ordinary shares |
| Series A preference shares | Typically ranks ahead of seed preference shares |
| Convertible note | Structured as debt, so it generally ranks highest, ahead of all equity classes |
If a company is sold or wound up and there isn't enough money to fully repay everyone who invested, this stack determines who gets paid first. It's essential to know exactly what class of security you hold - ordinary shares sit at the bottom, and while it's uncommon for sophisticated or venture investors to hold only ordinary shares, it does happen, sometimes with a corresponding discount to reflect the additional risk.
Preference share terms vary meaningfully even within the "preference share" label - features like liquidation preference multiples (1x or higher) and whether a preference share is "participating" (getting both its money back and a further share of remaining proceeds - effectively a "double dip") can materially change an investor's actual outcome, and should never be assumed to be standard.
Issues Angel Investors Should Watch For
| Issue | What to know |
|---|---|
| Pro rata rights in practice | Documented pro rata rights don't guarantee an allocation - an incoming investor who requires a large ownership percentage may ask existing investors to waive their pro rata rights entirely. Having the rights documented still gives you leverage to at least be part of the conversation. |
| Enhanced control provisions | Later-stage investors may negotiate rights an angel investor typically can't, such as an express right to force a sale process after a set number of years. |
| Pay-to-play dynamics | If existing investors are unwilling or unable to fund a struggling company's next round, a new investor may come in on very favourable terms for themselves (e.g. warrants), sometimes with structures that specifically disadvantage non-participating existing investors. |
| Information rights narrowing over time | As companies mature - particularly pre-IPO - information rights tend to become more restricted, often due to competitive confidentiality concerns. Strong founder relationships, or investing through a syndicate that aggregates investor rights, can help protect access. |
| Liquidation preference stacking | Later investors sometimes negotiate to rank ahead of earlier investors in the preference stack, even though earlier investors took on more risk. TEN13 typically pushes for pari passu (equal-ranking) treatment among investors where possible, with a standard market term being a 1x non-participating liquidation preference. |
The Role of Lawyers
A good commercial lawyer can materially change an investment outcome - confirming an investor is actually getting the deal they think they're getting, advocating on their behalf, and advising on current market-standard terms, new case law, and regulatory changes from ASIC. Lead investors are typically reimbursed for their legal costs by the company, usually paid out of the funding round itself. Experienced legal advisors can also play the role of "bad cop" in a negotiation when that's strategically useful.
Who Presented This Session
Flight Club #3 was presented by two members of TEN13's investment team, with input from Investment Analyst Alexander Barrat and Manager of Investor Relations Brendan Hill.
As a team, TEN13 has 30+ years of combined venture capital investing experience, has deployed $120m+ in funds under management, has backed 100+ companies, and holds 8 board positions.
Further Resources on Venture Terms
| Resource | Detail |
|---|---|
| Book | "Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist" by Brad Feld and Jason Mendelson |
| YC SAFE documents | Standardised US SAFE templates referenced in the session, available via Y Combinator |
| Open-source term sheet and deal documents | Australian and US templates referenced in the session, including AIC (Australia) and NVCA (US) standard documents |
| DLA Piper term sheet session | An in-depth term sheet walkthrough delivered by TEN13's legal counsel DLA Piper during TEN13's Jetstream San Francisco trip |
| Related sessions | Flight Club #1: Venture Investing 101; Flight Club #2: Portfolio Approach |
| Next session | Flight Club #4: Due Diligence & the Pre-Flight Checklist |
Frequently Asked Questions About Venture Terms
What's the difference between a SAFE and a convertible note?
Both are instruments that convert into equity at a future date, typically the company's next priced round. The key difference is that a SAFE has no interest and generally no maturity date, while a convertible note is legally structured as debt - it carries an interest rate (coupon) and a maturity date by which it must either convert or be repaid, and it typically ranks ahead of equity in the capital stack.
What is a SAFE valuation cap, and how does it work with a discount?
A valuation cap sets the maximum valuation at which a SAFE will convert into shares, protecting early investors if the company's valuation rises sharply. A discount gives the investor a percentage reduction on the price of the company's next priced round. When a SAFE has both, it converts using whichever is more favourable to the investor - the cap in an up round, or the discount in a down round.
Why does TEN13 generally avoid uncapped SAFEs?
An uncapped SAFE has only a discount and no valuation ceiling, meaning an early-stage investor's eventual ownership is tied entirely to the price of whatever future round triggers conversion - however high that valuation turns out to be. This means an investor who took on early-stage risk may not be adequately compensated for it if the company's valuation rises significantly before the SAFE converts.
What are the core legal documents in a priced equity round?
The two central documents are the shareholders' agreement (governing control, decision-making and shareholder protections) and the subscription agreement (the transaction document setting out the mechanics of the share purchase, including warranties and indemnities). These typically follow a non-binding term sheet, and are supported by the company's constitution and other documents such as IP assignment deeds and ESOP plans.
What is a liquidation preference?
A liquidation preference is downside protection for preference shareholders: if a company is sold for less than its most recent valuation, preference shareholders generally get their invested capital back first, before remaining proceeds are distributed to ordinary shareholders. A standard market term is a 1x non-participating liquidation preference. In a strong outcome (an IPO, or a sale well above the entry valuation), all shareholders typically convert to ordinary shares and the preference becomes a non-issue.
What is a pro rata right, and can it always be exercised?
A pro rata right is the contractual right to invest in a company's future funding rounds to maintain your existing ownership percentage. In practice, pro rata rights are sometimes waived under commercial pressure - a new investor may require a specific ownership percentage that requires existing investors to give up their allocation. Having documented pro rata rights doesn't guarantee participation, but it does give an investor leverage in that negotiation.
What is TEN13, and where is it based?
TEN13 is a Brisbane-based Australian venture capital syndicate founded in 2019 by Stew Glynn and Steve Baxter. Its deal-by-deal model lets a network of 500+ sophisticated investors co-invest in individual funding rounds from a A$10,000 minimum, alongside TEN13's own first cheques of A$300,000-A$2 million into pre-seed and seed technology companies.