Venture Capital Investment Model Agreements

CNPupdate

Venture Capital Investment Model Agreements

Wednesday 20 February 2019

Entrepreneurs and investors of companies in the early stages of funding, namely pre-Series A and Series A rounds of funding, can now refer to the Venture Capital Investment Model Agreements (“VIMA”), which has been launched by the Singapore Academy of Law (“SAL”) and the Singapore Venture Capital and Private Equity Association (“SVCA”) on 23 October 2018.

VIMA is a set of model documents and contracts for use in pre-Series A and Series A financing rounds governed by Singapore laws and intended for Singapore incorporated companies.

VIMA comprises the following documents : –

  1. venture capital lexicon;
  2. non-disclosure agreement;
  3. convertible agreement regarding equity (CARE);
  4. Series A term sheet (short and long form template);
  5. subscription agreement; and
  6. shareholders’ agreement;

The model agreements can be downloaded from the SAL and SVCA’s website (click here to access Singapore Law Watch and SVCA’s website). Each document includes drafting or explanatory notes on the various clauses in the documents. The documents have also been drafted based on Singapore law, and incorporates Singapore law as the chosen governing law and Singapore as the chosen dispute resolution forum.

The VIMA initiative aims to accelerate the negotiation process between entrepreneurs and investors in the early stage of funding, and to reduce transaction friction in terms of time and costs in having to prepare the documents from scratch.

While the provisions in the VIMA appear to be generally fairly neutral, and aim to provide entrepreneurs and investors a balanced starting point, users of the VIMA templates may choose to seek legal and tax advice before using these documents. It should be highlighted that the VIMA documents are not exhaustive – additional documents are needed and the relevant VIMA documents will require tailoring to meet the specific legal and commercial requirements of the contemplated transaction.

Take for instance the model shareholders’ agreement, which sets out the terms and conditions which govern the rights and obligations of the investors and founders as shareholders of the company inter se. Certain provisions of the shareholders’ agreement relating to the rights of the “Series A shares” would require to be reflected in the Constitution of the company by virtue of the Companies Act.  In addition, it is common to include certain provisions (that may also be found in the shareholders’ agreement) in the Constitution of the company, reflecting the fact that the Constitution binds a shareholder whether or not it is a party to any separate agreement and the remedies for a breach of the Constitution may extend beyond the remedies available under the law of contract (which typically provides damages as a remedy).  In deciding what provisions to include in the Constitution (beyond those required by law) consideration should be given to the fact it will be publicly available on ACRA, whereas the shareholders’ agreement will be subject to confidentiality obligations.

Additional Documents

Startup founders and entrepreneurs would likely require legal assistance to review the following additional document templates : –

  • model constitution for companies;
  • employment agreement(s) for founders and employees; and/or
  • share option plans for founders and/or employees e.g. “ESOPs”.

Update on the Venture Capital Market

According to the SVCA, venture capital investments into Southeast Asia totalled US$2.7 billion in 2017 and $3.2 billion in the first 8 months of 2018.

On 13 November 2018, the Monetary Authority of Singapore (MAS) announced initiatives to enhance private markets financing channels, including a programme to place up to US$5 billion for management with private equity (PE) and infrastructure fund managers. Under the US$5 billion private markets programme, MAS will fund PE and infrastructure fund managers who are committed to either deepening their existing presence or establishing a significant presence in Singapore.

This update is provided to you for general information and should not be relied upon as legal advice. 

For further information on the above, please contact our Corporate Advisory team.