Free walkthrough
Investment agreement walkthrough: from term sheet to signed round
A priced round is not one contract but five, built from the NVCA model documents in the US and the BVCA models in the UK. This walkthrough explains what each document does, which terms live where, and what to check before you sign. Use the official model documents and a venture lawyer; do not copy templates.
Use the model documents
The National Venture Capital Association publishes free model documents that most US venture rounds start from. The British Private Equity and Venture Capital Association publishes the UK equivalents. Investors’ counsel will usually start from them; your lawyer should be able to name every deviation.
The documents, in the order you will see them
Term sheet
A two- to six-page non-binding summary of the deal: valuation, amount, liquidation preference, anti-dilution, board, protective provisions, pro-rata, option pool, vesting and no-shop. Only confidentiality and the no-shop are binding. Everything in the documents below should trace back to it.
What to check: Anything you did not negotiate here will appear in the long-form documents in the investor’s favour. Negotiate the term sheet, not the closing documents.
Stock Purchase Agreement
The contract that actually sells the shares: how many, at what price, who buys at closing, and the company’s representations and warranties on capitalization, intellectual property, litigation, compliance and financial statements, with a disclosure schedule of exceptions. It sets closing conditions and allows additional closings for investors who join later.
What to check: The representations are made by the company, not by founders personally. Check that founders are not asked to give personal representations or indemnities, and that the disclosure schedule is complete.
Amended and Restated Certificate of Incorporation
The company’s constitution, refiled with the state. It creates the new preferred class and defines its rights: dividends, liquidation preference and whether it participates, conversion to common, anti-dilution adjustments, voting rights and the protective provisions that need preferred approval.
What to check: This is where 1x non-participating, broad-based weighted average and the list of vetoes actually live. Compare each line with the term sheet.
Investors’ Rights Agreement
Rights investors hold against the company: registration rights for an IPO, information rights such as financials and the budget, the right of first offer on new securities, and covenants such as employee vesting, confidentiality and invention assignment agreements, D&O insurance and matters that need investor director approval.
What to check: Check who counts as a Major Investor; only they usually get information and pro-rata rights. Watch for super pro-rata and for covenants that require investor approval of hiring or budgets.
Voting Agreement
Who sits on the board and how. Stockholders agree to vote for directors designated by the founders, by the preferred, and for an independent. It also contains the drag-along: if the board, the preferred majority and the common majority approve a sale, everyone must vote for it.
What to check: The board composition decides control of the company. Check the number of seats, who designates each, and that the drag-along needs common approval too.
Right of First Refusal and Co-Sale Agreement
If a founder wants to sell shares, the company first and then the investors have the right to buy them. If the sale still goes ahead, investors can sell alongside on the same terms, the co-sale or tag-along right. It protects investors from founders cashing out before them.
What to check: Carve out small transfers to family trusts and estate planning, and check the threshold at which the right of first refusal applies.
Management rights letter
A short letter some venture funds need for regulatory reasons confirming the investor can consult with management and inspect the books. It rarely adds obligations beyond the investors’ rights agreement.
What to check: Usually harmless. Confirm it does not grant rights beyond what the investors’ rights agreement already gives.
Closing deliverables
Board and stockholder consents approving the round, a legal opinion from company counsel, an updated capitalization table, a 409A valuation for option pricing, indemnification agreements for new directors and good standing certificates. Money moves when all of them are in.
What to check: Start the 409A and the cap table clean-up before the term sheet is signed; they are the usual reason closings slip.
Seed rounds with simpler documents
Smaller priced seed rounds often use the Series Seed document set, which folds most of the rights into fewer, shorter documents. The terms are the same; the paperwork and the legal fees are smaller. If an investor proposes it, it is usually founder-friendly.
Rounds outside the US
UK rounds use the BVCA subscription and shareholders’ agreement with new articles of association; most EU countries use a shareholders’ agreement plus notarised articles. The vocabulary changes, the economics do not: preference, anti-dilution, board, vetoes, drag-along and leaver clauses are the terms to check everywhere.
Questions founders ask
How long does documentation take?
Two to five weeks from signed term sheet to closing if the data room is ready and the cap table is clean.
Who pays the lawyers?
The company usually pays its own counsel and the investors’ counsel up to a cap agreed in the term sheet. Negotiate the cap.
Is this legal advice?
No. It is a map of the documents so you can brief your lawyer and read the drafts with understanding.
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