Investment Agreement

An investment agreement sets out how much the investor will invest in the company, which shares it will receive in return and under which conditions the investment will be completed. The terms set in the term sheet become binding in this agreement.

Key Provisions

• Investment amount and number of shares: How much of the investment is share capital and how much is share premium, and the type of shares to be issued; see Pre-money Valuation,
• Payment: In one go or in tranches tied to milestones,
• Conditions precedent: Required approvals, corporate resolutions and documents,
• Representations and warranties: Assurances given by the company and founders on the company’s condition,
• Indemnity: Compensation for the investor’s loss if the assurances prove untrue,
• Use of proceeds: The purposes for which the investment may be used,
• Pre-closing covenants: The company not undertaking transactions outside the ordinary course between signing and closing.

Corporate Actions

Since the investment is usually made through a capital increase, the agreement also contains the company’s and shareholders’ undertakings to:

• Adopt a general assembly resolution amending the articles and increasing capital,
• Have existing shareholders not exercise, or restrict, their pre-emptive rights,
• Add the preferred shares granted to the investor to the articles of association,
• Record the shares in the share register and register the capital increase.

Relationship with the Shareholders’ Agreement

The investment agreement governs the one-off transaction of making the investment, while the shareholders’ agreement governs the ongoing relationship between shareholders after the investment. The definitions, dispute resolution and governing law provisions of the two documents should be consistent. If the investment is made by buying shares from existing shareholders, a share purchase agreement is used instead.