The Convertible Equity Agreement is a crucial instrument in the Australian startup and growth company ecosystem, typically used when companies seek early-stage investment while deferring formal valuation. This document is particularly valuable when a company needs immediate funding but determining a precise valuation is premature or impractical. It provides investors with the right to convert their investment into equity shares at a future date, usually during a qualifying funding round or exit event. The agreement must comply with Australian corporate law, including the Corporations Act 2001 and ASIC regulations, and typically includes provisions for conversion mechanics, valuation caps, discount rates, and investor rights. It's commonly used by startups and scale-ups raising seed or bridge funding, offering a balance between investor protection and company flexibility while avoiding immediate dilution of founder equity.
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1. Parties: Identification of the company and the investor(s)
2. Background: Context of the agreement, including company status and investment purpose
3. Definitions and Interpretation: Key terms used throughout the agreement and rules of interpretation
4. Investment Amount and Equity Rights: Details of the investment amount and the resulting equity rights
5. Conversion Mechanics: Triggers and procedures for converting the investment into equity
6. Valuation and Pricing: Methods for determining company valuation and share price upon conversion
7. Company Warranties: Company's representations about its status, operations, and compliance
8. Investor Warranties: Investor's representations about their status and investment capacity
9. Information Rights: Investor's rights to receive company information and reports
10. Pre-emptive Rights: Rights relating to future capital raises and share issues
11. Term and Termination: Duration of the agreement and circumstances for termination
12. General Provisions: Standard legal provisions including notices, amendments, governing law
1. Board Appointment Rights: Rights of investors to appoint board members, typically included for larger investments
2. Anti-dilution Protection: Provisions protecting investor's stake from dilution, often included for sophisticated investors
3. Tag-along Rights: Rights to join in sale of shares by other shareholders, included for minority investor protection
4. Drag-along Rights: Company's right to force investors to join in a company sale, included for exit flexibility
5. Most Favored Nation Clause: Ensures investor gets best terms offered to future investors, often in early-stage investments
6. Foreign Investment Provisions: Additional provisions required when involving foreign investors
7. Confidentiality: Detailed confidentiality provisions if not covered in general terms
1. Schedule 1 - Investment Terms: Detailed terms of the investment including amount, valuation cap, discount rate
2. Schedule 2 - Company Details: Corporate information including capital structure and existing shareholders
3. Schedule 3 - Conversion Notice: Form of notice to be used when triggering conversion
4. Schedule 4 - Warranties: Detailed list of company and investor warranties
5. Schedule 5 - Calculation Methods: Detailed formulas for calculating conversion price and share numbers
6. Appendix A - Shareholders Agreement: Form of shareholders agreement to apply post-conversion
7. Appendix B - Constitution Amendments: Required amendments to company constitution upon conversion
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Education Technology
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Relevant Teams
Legal
Finance
Corporate Development
Executive Leadership
Investment
Compliance
Business Development
Company Secretariat
Risk Management
Relevant Roles
CEO
CFO
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Investment Manager
Startup Founder
Company Director
General Counsel
Financial Controller
Business Development Manager
Venture Capital Partner
Angel Investor
Company Secretary
Chief Legal Officer
Investment Analyst
Corporate Development Manager
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