Typical Investor Agreements

Small business owners may use investment contracts if they have an interest in investing in other companies or attracting foreign investors to their business. When a person indicates money under the investment contract, they expect to get a profit based on the efforts of a third party. After agreeing that the investor may have legitimate reasons for requesting appropriate documents, the objective of interested parties should be to establish and regulate documents effectively and at a lower cost. Legal documents (in the author`s opinion) should be prepared on the basis of fairness and fairness. Your conversation with the angels (even passive ones) does not end at the end. Regardless of the actual conditions of the shareholders` pact, it is worth recognizing that the quality of a founder`s personal relationship with his investors informs the tone of corporate governance. However, if your investor is expected to hold a minority interest and/or does not participate in a hands-on (i.e. often active) stake with the company in which he or she is investing, it is likely that he will seek an item of the agreed investment documentation to protect his interests. As the founder of the company – you want their money, so that you are presented with a “Take it or leave it” proposal. The worst thing you can do in such a situation – is simply accept the terms offered, especially if you don`t have to look at them in detail (in order to know what you agree). On the other hand, if your investor receives preferred shares, the investor will likely exercise a disproportionate degree of control and receive a greater share of the turnover than you would otherwise think if you only compared the number of shares each party held. This is because preferred shares work like your shares under a totally separate set of rules (which is defined in investment documents). If you are raising money from any type of investor, it is a good idea to talk to your lawyer about whether he or she sees an investor-friendly or business-friendly capital market.

If it`s not friendly, be patient – recent experience shows that the tide will always turn. In the investment agreement, there may be a provision that indicates the intention of the parties to try to withdraw, for example. B a listing of the company on a recognized exchange or a sale of the company within a specified period (usually 3 to 5 years). This intention is generally related to the recognition that an investor will not provide any guarantee or compensation for the company`s operations and business in the event of an exit, along with other guarantees as to its ability to sell its shares. You may feel tempted to accept the first investment offer you receive. However, remember that you must work with this person for the duration of your business. Before you jump, look for investors who have experience in your industry and who are looking after companies at certain stages. Think about how the investor is paid. Is it a flat-rate interest rate or do you both accept a return based on the success of the investment? The contract should also take into account what happens if your business is dissolved or bankrupt. In these circumstances, what will happen to the investment? Almost all external investors will apply for an anti-dilution clause in any form.