Another way for investors to participate in the company`s equity is to buy shares from existing shareholders. Here`s a beginner`s guide to key capital raising documents and investment agreement templates for founders and entrepreneurs. An investment contract is a contract between founders and investors who wish to acquire shares in an existing company. The incoming investor can be a new shareholder, an external investor or even an existing shareholder. Series A – usually angel investors or venture capital funds This is not a theory or academic exercise. This term sheet is actually used today by angel funds in British Columbia. The Fund, together with all syndicated investors (collectively, the ”Investors”), will purchase common shares (the ”Shares”) at a price of *$per Share. The total round for all investors is $*, whose fund invests $* to buy the total* of shares. As long as investors hold their shares and until a liquidity event, they have the right to exchange them in all follow-on financings for the same type and class of securities issued by the Company (the ”New Securities”), such New Securities should have rights superior to the Shares. The investment will be made in accordance with an investment agreement between the Investors, the Company and certain of its principals (the ”Principals”). The capital structure at closing will be as described in the attached share register.
Angel investors are typically wealthy individuals who provide capital to help entrepreneurs and small businesses succeed. They are known as angels because they often invest in risky and unproven business ventures for which other sources of funding – such as bank loans and formal venture capital – are not available. New start-ups often turn to the private equity market for seed capital, as the formal stock market is reluctant to fund risky ventures. In addition to their willingness to invest in a startup, angel investors can bring other assets to the partnership. They are often a source of encouragement, they can be mentors on how best to run a new business through the start-up phase, and they are often willing to do so while staying out of the day-to-day running of the business. Carefully consider the pre-emptive rights granted to investors or any consent rights on future funding rounds. If you have multiple angel investors, you can create a corporate governance regime that includes an independent assessment of available alternatives and offers some protection against investor misconduct or opportunism. An investment contract mainly governs the rights and obligations of the new investor(s). It protects the incoming investor(s) from entering a shady start-up and determines the form of payment of the new investor(s).
The investor(s) may choose not to invest in the Company (or in additional tranches) if the Company does not meet certain requirements. Basically, it is a contract between the owners and the investor(s) who wish to acquire ownership of the business. Changes to the capital structure, new shares, options or debt require the approval of the majority of investors in this cycle. Sometimes you may find little difference between an angel investor or seed term sheet and a venture capital term sheet. The investment structures required by angels and founding covenants are less limited by standardized institutional practice. This term sheet was created for angel investments that are made early by the Angel Fund. The conditions have been simplified to match the level of investment and are proposed for review and acceptance. The advantage of this method of raising capital is the absence of a financial burden, since the founders do not have to repay the investor. Investors receive financial returns based on the company`s market performance, usually in the form of dividends and stock valuations. These financing rounds allow investors with different investment appetites to participate in the different phases of the company`s growth through a stake in the capital. Seed – usually friends and family or angel investors They can be repaid on an equal schedule (for investors who grant loans instead of buying equity in your business), they can be repaid based on their share of ownership or they can be repaid at a preferential return.
Startup founders should consider the following five key provisions of an angel term sheet: Less typical provisions are exclusivity agreements that require the startup to stop investment negotiations with others, but some better-organized angel syndicates include such provisions in their standard term sheets. (If so, founders should limit this period to a maximum of 30 to 60 days.) Preferential returns represent an amount that the startup must return to the angel before distributing assets (payments) to other stakeholders. With angel transactions, this amount should generally not exceed the amount of the initial investment, and founders should negotiate any term sheet suggesting a different formula. .