muru-D changes funding model for #SYD4 cohort
For #SYD4, muru-D is changing it up! muru-D is still investing up to $40K during the program but this will now be on a SAFE note (Simple Agreement For Future Equity). SAFEs were pioneered by Y Combinator and have now been adapted for Australia. The SAFE enables each company’s valuation and muru-D’s equity to be determined in the future based on how investors value the company later on. This gives muru-D more flexibility and stronger startups a better deal. Following the program, companies raise at the best valuation they can achieve in the market.
To celebrate, the closing date for #SYD4 applicants has been pushed back from 4 November to 7 November 2016.
muru-D Entrepreneur-in-Residence Ben Sand said that muru-D’s switch to using a SAFE note for its startup investments enables muru-D to broaden the range of companies it can target for the program, including attracting more mature companies to apply.
“We are confident that our program with its experienced team of entrepreneurs and startup and technology professionals, great mentor and investor network, and access to corporates can add considerable value to both early and later stage startups,” Ben said.
“These new terms bring muru-D in line with global best practice – ensuring that our startups are getting the best deal possible.”
Further details below:
muru-D is still offering up to $60K per startup during and post-program. However, previously muru-D invested up to $40K in each startup during the program in return for a small equity stake which valued each company at ~$1M. $20K follow-on funding was also available to companies raising further investment post-program on terms acceptable to muru-D.
For SYD4, muru-D is still investing up to $40K during the program but this will now be on a SAFE note (Simple Agreement For Future Equity). The SAFE enables each company’s valuation and muru-D’s equity to be determined in the future based on how investors value the company later on.
Companies receive $20K at the start of the program. If they achieve specific milestones by the mid-point of the program this unlocks a further $20K. muru-D has dropped the requirement that companies raise $15K from mentors/investors as one of their mid-point milestones.
The initial program SAFE has a 75% discount. The mid-program SAFE has a 50% discount. The discount is the discount off the share price at the time of conversion. During the term, the SAFEs won’t convert until the company does a qualifying raise (minimum $200K raise on a minimum $2M valuation). The term of the SAFE is 2 years from the muru-D program start date. If a company has not done a qualifying raise by the end of the term, the SAFEs automatically convert at a $2M valuation with the discounts indicated.
Post-program, companies doing a minimum raise of $50K from a third party on acceptable terms are eligible for muru-D follow-on funding of $20K. muru-D will generally follow the terms of that round.
Up to $75K is also available from the Bardama Fund which has agreed to invest in SYD4 companies on the same terms as muru-D. $50K is available at the mid-point of the program (if muru-D milestones are met) and $25K post-program. See http://bardama.com.au/ for further details.
What equity will muru-D get?
That depends on the valuation of the first qualifying raise post-program which triggers conversion. See examples below.
$2M post-money valuation: muru-D’s SAFE notes will convert as follows:
- The first $20K note will convert at a 75% discount so muru-D will get $80K equity or 4%
- The second $20K note will convert at 50% discount so muru-D will get $40K equity or 2%
- Total muru-D equity on conversion 6%
$2M is a floor below which muru-D won’t convert so we won’t take more equity than this. As illustrated below, our equity stake will be lower if the post-money valuation exceeds $2M.
$5M post-money valuation: muru-D’s SAFE notes will convert as follows:
- The first $20K note will convert at a 75% discount so muru-D will get $80K equity or 1.6%
- The second $20K note will convert at 50% discount so muru-D will get $40K equity or 0.8%
- Total muru-D equity on conversion 2.4%
As there is no cap to the valuation, higher valuations will result in smaller percentages for muru-D. For example:
$10M post-money valuation: Total muru-D equity on conversion 1.2%
$20M post-money valuation: Total muru-D equity on conversion 0.6%
and so on.