A venture capital investment is a partnership between an investor and a growing company. To create a productive relationship that supports a fast-growing business, the partnership must be good for both the entrepreneur and the venture capitalist. In order to ensure the fairness of the agreement and to promote the interests of both parties, pay particular attention to the appointment sheet and the evaluation of your company. Information Rights – Investors require the company to provide a regular business update on its financial and employment status, and to have the common right to visit the company and verify its documents and accounts. Reports are usually monthly or quarterly and report documents are attached to the investment agreement. Advice and Advice – as a general rule, investors should have a representative on the Board of Directors (Valde) or the Supervisory Board (Padome). In Latvia, VC/PE investors often prefer that it establish a supervisory board and sit on the Board to avoid possible commitments to the board of directors. Investors can look for other non-executive board members who are industry professionals who can assist the company with its experience, contacts and advice. In many cases, investor representatives and non-executive members of the Board will form the majority of the Board. According to the SVCA, venture capital investment in Southeast Asia was $2.7 billion in 2017 and $3.2 billion in the first 8 months of 2018. Convertible Bonds – Some start-up investors prefer to structure their investment as a loan that will be converted into equity in the next round of the investment (qualifying round), with an agreed discount for the holder of a convertible loan if he has taken a previous risk. In this way, the parties have yet to agree on an evaluation. In general, investors agree on a valuation cap that is the maximum valuation at which the loan is converted into equity.
Disclosure letter – company and founding shareholders` document to inform investors of exceptions or exemptions to warranties. Signing the newsletter is usually a prerequisite for investment. When a question is referred to in the disclosure letter, it is considered that investors are informed and will not be able to demand a breach of a guarantee regarding the disclosed information. In some cases, the investor may ask the founding shareholders to compensate themselves for some of the risks highlighted in the disclosure letter. Each year, the venture capital industry completes thousands of funding cycles that attract a lot of time and effort from investors, management teams and lawyers. Conservatively, the sector spends about $200 million a year on direct legal fees to complete private funding cycles. In a situation that is too typical, lawyers begin with documents from recent funding, iterative to adapt the documents to their common point of view to appropriate language (which reflects the specifics of the agreement and the general best practices of the industry), and all parties examine many revisions dressed in black, in the hope of avoiding important questions, as the documents slowly arrive at their final form. Take, for example, the standard shareholder contract, which defines the conditions that govern the rights and obligations of investors and founders as shareholders of the company.