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Venture Capital Investment Model Agreements

By Singapore Academy of Law and Singapore Venture Capital and Private Equity Association

Venture capital investments are becoming increasingly popular and prevalent in Singapore[1] and Southeast Asia, and this trend is expected to continue. Each investment may be unique, but there is no need for founders and investors (and their respective advisors) to spend time and incur costs by preparing and negotiating each investment from scratch, especially for early stage financing. To cut down on transaction costs and reduce friction during the negotiating process, the Venture Capital Investment Model Agreements (VIMA) provide a set of model agreements for use in seed rounds and early stage financing.

VIMA offer the following advantages to both founders and investors:

  • The terms take into account the interests of founders and investors in a balanced and pragmatic fashion. Many clauses reflect industry norms. This helps to reduce the number of issues that needs to be resolved, and frees up time for founders and investors to focus on negotiating high-level issues and key deal-specific terms.
  • VIMA provide general information regarding funding rounds, which would be especially useful to founders and investors who are entering into such funding rounds for the first time to bridge any information asymmetry.​

What VIMA comprise

VIMA comprise the following documents:


Introduction

   
Venture Capital Lexicon

    
Non-Disclosure Agreement*     
(the "NDA")
   
Convertible Agreement Regarding Equity*
(the "CARE")

   
Term sheet**


Short Form Term Sheet**

   
Subscription Agreement**

  
Shareholders’ Agreement**
   

*See Note on the CARE and NDA
**See Note on Term Sheet, Subscription Agreement and Shareholders’ Agreement

How to use VIMA

Each document includes drafting or explanatory notes on various clauses in the documents. The documents have been drafted based on Singapore law, and therefore incorporate Singapore law as the chosen governing law and Singapore as the chosen dispute resolution forum.

The Venture Capital Lexicon sets out the terms which are commonly used in an early stage financing round, to provide founders and seed investors with general information and explanations on the terminology used in funding rounds.

Founders and investors may use VIMA to commence investment discussions and focus on key commercial points, tailoring any terms (or inserting any additional terms) as they may require into the documents.

Please note that VIMA do not provide the entire range of potential options available or appropriate for early stage financing rounds, since these are often dependent on the specific transaction or parties involved. Thus, depending on the circumstances, parties may need to tailor specific terms in the documents to suit their needs. Additional documents may also be required for an early stage funding round (e.g., the constitution of the company, consent of other investors, founder employment agreement, etc). However, we believe that the Venture Capital Investment Model Agreements would remain relevant by providing a useful guide as to how funding rounds are typically structured.

Note on the CARE and NDA

The CARE is drafted based on the following assumption:

  • An investor is making a cash investment in a Singapore incorporated private company, in exchange for receiving either shares in such company or cash upon occurrence of certain events.

The NDA is drafted based on the following assumption:

  • A company is providing confidential information about itself to a potential investor looking to invest in such company.

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Note on Term Sheet, Subscription Agreement and Shareholders' Agreement

The Term Sheet, the Subscription Agreement and the Shareholders' Agreement include options and rights that are more suitable for a Series A funding round (as opposed to a seed funding round), and are drafted on the following assumptions:

  • An investor (or a group of investors) is (are) making a significant minority investment in a growth stage company incorporated in Singapore. 
  • The investment instrument is Series A preference shares. 
  • The documents are governed by Singapore law with Singapore being the forum for any dispute# resolution.

Significant amendments may be required to the Term Sheet, the Subscription Agreement and the Shareholders' Agreement included in VIMA to the extent they are to be used for a seed funding round. 

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Form update and feedback

VIMA will be updated periodically to remain relevant to users. More standard documents may also be added from time to time depending on the need and user adoption.  We therefore welcome feedback and if you have any comments to share regarding the VIMA, please let us know  at [email protected].

Working Group

The Singapore Academy of Law’s Promotion of Singapore Law Committee and the Singapore Venture Capital and Private Equity Association wish to record their appreciation to the members of the Working Group and contributors who participated in preparing VIMA:

 

                      

                

DISCLAIMER

No document or information provided in VIMA should be construed as legal advice (including for any fact or scenario described in such documents or any assumptions made in relation to such documents). The documents and the information in VIMA is a starting point only and the relevant documents should be tailored to meet the specific legal and commercial requirements of the contemplated transaction. Additional documents may be required for the contemplated transaction. Legal and tax advice should be sought before using these documents. Neither the Singapore Academy of Law nor any of the working group members or contributors takes any responsibility for the contents of the documents provided in the VIMA.


[1] In 2017, there were more than $1.2 billion in VC investments in Singapore across 112 deals. See KPMG Press Release, “2017 Global Venture Capital Investment Hits Decade High of US$155 billion following a strong Q4” (18 January 2018).

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