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. Entrepreneurs should expect venture capitalists to do a significant amount of due diligence before making an investment. Some of it is done by VCs and some by VCs lawyers. Since there is no perfect formula for determining a company`s valuation at the beginning of the period (pre-turnover), you should spend time negotiating with investors to ensure that everyone is on the same page on valuation and risk (both the risks your business is exposed to and the risks it has overcome) in the event of an investment. VCs sometimes ask for a provision to cash in their investment through a withdrawal function (provided the company has the money). A typical withdrawal provision would allow investors to stagnate by a majority if they vote, five years after their investment, that they choose to be cashed (purchased at the initial purchase price), with payments over a three-year period in the same tranches. Withdrawal fees are rare, and even in the rare event where they are set up, they are almost never triggered – but they can give leverage to a VC that wants liquidity. [1] In 2017, in Singapore, 112 agreements yielded more than $1.2 billion in venture capital investments. See KPMG press release, “2017 Global Venture Investment Investments Decade High of $155 billion after a strong fourth quarter” (January 18, 2018). The structure of the investment contract is by no means regulated.
It is usually proposed by the investor and refined by trading. However, some clauses are typical and universal. In the unlikely event of a dispute between the company and investors over the maturity sheet or final investment documents, it is often advantageous for the company and for the company`s investors to settle the dispute through confidential and binding arbitration procedures (not through public litigation). The composition of the company`s board of directors is as important to venture capitalists as it is to founders. VCs, especially if they are the “leading” investor in a financing cycle, will often have the right to appoint a number of directors to oversee their investments and have a useful say in the management of the business.