Solicitors for investment agreements

Investor contracts

We have a team of highly experienced growth company specialist lawyers who advise investors and also founders/current shareholders on investment transactions. Each situation is different so it is our experience of previous investment transactions and commercial experience which are as valuable to our clients as our legal acumen.

Depending on the underlying situation, an investment agreement will typically be in the form of a share purchase agreement but will also generally require consideration/amendment of existing corporate documents such as a shareholder agreement and the company’s articles of association.

Key initial considerations

When deciding on whether to seek external investment, business founders and investors will generally also want to think about (and likely include in an investor contract) issues over and above the amount of money being invested and shares given to the investors. These issues often include :-

• Control – investors are likely to require significant ability to oversee and possibly even control certain aspects of the business. They will very often demand representation at Board level.

• Exit – what is the investors likely exit timetable and plan? Does this accord with the founders plan?

• Strategic benefits other than money - investors often bring valuable expertise, industry connections, and strategic guidance. Investment can validate the company's potential and attract additional investors.

• Employee reaction and retention – with high growth businesses, especially technology businesses, employees are key and they may react badly to 3^rd party investment, especially if they have shares or share options which are impacted by the investment, or where they had an expectation of getting equity in the company on advantageous terms which may not be possible/as attractive after  the investment.

• Founder motivation – having built up a business from the beginning the founders will be highly committed and motivated. External investment will often change the dynamic, especially where investors require a degree pf control going forward. Both investor and investee should carefully consider how to get the balance right to protect the investor whilst keeping the founders motivated.

Key Provisions in Investment Agreements

1. Investment amount and consideration payable -  defines the amount of investment, the type of consideration (equity, convertible debt, etc.), and the valuation of the company.

2. Investor Rights -  see below

3. Exit Strategy - the terms under which investors can exit their investment, such as through an initial public offering (IPO), a sale of the company, or a buyback by the company.

4. Governance - matters such as the composition of the board of directors, executive compensation, and dispute resolution mechanisms.

5. Warranties and Representations -  warranties and representations about its financial condition, intellectual property, and other aspects of the business.

6. Covenants on the business - restrictions or obligations imposed on the company, such as limitations on debt levels or dividend payments.

7. Covenants from founders – whereby the founders and potentially other key employees agree to stay in the company, retain shares for a set period or under certain conditions and non-compete restrictions if they depart.

Investor rights and protections

• Board Representation - investors can appoint directors to the board to ensure their interests are represented and to have a voice in strategic decisions.

• Veto Rights - allow investors to block certain actions, such as major changes to the company's business or structure.

• Convertible Loans – instead of a straightforward injection of cash in return for shares, a popular alternative is for investors to loan the business money on the basis that the loan can be converted into equity at a predetermined conversion price, providing investors with upside potential while offering the company flexibility in terms of repayment.

• Other Control Points - Investors may seek control over certain key decisions, such as hiring and firing of senior executives, further borrowing or potential legal disputes the company becomes involved in.

• Anti-Dilution Protection - protects investors' ownership percentage in case of future equity being issued by the company.

Alternatives to private equity investment

Loans - allows the business to grow without diluting ownership, may offer more flexibility in terms of repayment terms and interest rates, interest payments may be tax-deductible.

Government Grants and Incentives -  can provide funding without requiring equity or debt. Often tied to specific industries or projects. Can be highly competitive and require extensive time and expense without guarantee of success.

Get legal advice

It is important to consult with experienced lawyers to ensure that your investment agreement is tailored to your specific needs and protects your interests, whether you are investor or investee.

Please do call or email us to discuss how we can help and to get to know us and whether we are a good fit for you.