What is Angel Investor Agreement Drafting?
An angel investor agreement is a legal contract that specifies the terms for an arrangement between a startup and a private investor regarding investments. How it works is that angel investors will invest their money in a startup company in exchange for equity.
When drafting an angel investor agreement, its terms need to be clearly defined.
Read the rest of this article for clarity about how to draft your angel investor agreement, such as key terms to include in it, and how a qualified lawyer can help you with the drafting process.
What are Core Terms in an Angel Investor Agreement?
An angel investor agreement usually contains the following essential information:
- Company valuation. Explain the company’s value before and after the capital is invested by the angel investors.
- Voting rights. Outline how many founders’ and investors’ seats are on the board of directors.
- Anti-dilution protection. This helps to protect the investor if the startup company raises a future round at a lower valuation than the current one.
- Exclusivity and confidentiality. This clause serves to prevent the startup from negotiating with other investors for a specific duration.
- Investment structure. Outline what the angel investors will receive, such as common shares.
- Dispute resolution. Explain the process for resolving disputes, such as negotiation, mediation, or arbitration.
What are Tips for Angel Investor Agreement Drafting?
Drafting an angel investor agreement requires having a clear understanding of the investment terms, parties’ rights and roles, and applicable laws and regulations. Here are some tips to consider when drafting it.
Specify the Investment Amount
Clarify exactly what the total investment is, what payment methods apply, and if the investment is paid in one installment or several. This provides clarity for both parties to prevent ambiguity.
Outline the Investment Structure
Your agreement must specify if the investment is made in exchange for ordinary shares or another investment structure. This should be tied to equity ownership, the percentage of shares the investor receives.
Clarify Investor Rights
It’s important to explain what rights investors will have, such as voting rights, information rights, and other privileges.
Include Representations and Warranties
You want to identify statements that the company and investor will make to each other. These can include the authority to enter the agreement and financial information, such as how frequently the company will provide the investors with financial statements and other relevant information.
Outline Fund Use
You should specify how the investments will be used, such as for marketing or recruitment. This provides transparency with angel investors and helps startups to align their goals with their investors for a successful working relationship.
Explain Breaches
You want to explain what happens if one party breaks the agreement terms, such as if an angel investor fails to fulfill a funding obligation. This is important to clarify so both parties know what to expect.
Refer to Other Relevant Legal Documents
Make sure that the investment agreement is aligned with other company documents, such as shareholders’ agreements, for clarity and to prevent confusion.
Do You Need a Lawyer for Angel Investor Agreement Drafting?
Hiring a lawyer to draft an angel investor agreement is advisable, even though it’s not always legally required. It will put your mind at ease to know that a professional lawyer has ensured all the agreement terms are clear, balanced, and legally sound.
Here’s a rundown of what a lawyer will do during an angel investor agreement drafting:
- Check all the details, such as the parties’ information and authority to enter into the transaction.
- Draft the payment terms. This includes stating the investment amount, payment schedules, and funding conditions.
- Consider what rights are granted to the investors and how these are linked to founder obligations.
- Address confidentiality. A lawyer will ensure that all the agreement terms will protect the company’s private information and intellectual property.
- Check all company documents and agreements to ensure that the document is consistent with their terms.
- Ensure compliance with all applicable laws and regulations to prevent non-compliance challenges.
- Review an angel investor agreement. If you’ve already drafted an angel investor agreement, a lawyer will conduct an in-depth review of it so that you feel confident about all its terms.
Where to Find a Lawyer for Angel Investor Agreement Drafting
If you’re looking for a reputable lawyer to draft your angel investor agreement, you don’t have to spend time calling traditional law firms in your area. You can use an online legal platform that makes it easier to locate a lawyer and hire them to draft your agreement, without having to leave your home.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of lawyers, who have all been vetted on the platform. They have the credentials and years of experience to provide a professionally-drafted angel investor agreement that minimizes your legal and financial risks.
It’s easy to ask a lawyer on ContractsCounsel to draft your angel investor agreement. Here are the steps to follow:
- Go to the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Create or update contract.’ Alternatively, choose ‘Contract review’ if you’d like your angel investor agreement reviewed by a lawyer.
- Post your project, which is free. You can include some details about your project, such as the specific transaction or your company goals, to match with the best lawyers.
- Wait for bids. You’ll receive multiple bids from lawyers directly on the platform who are ready to help you with your contract drafting requirements.
- Research the lawyers. The platform provides lawyer data, such as their location, years of experience, credentials, field of expertise, and client ratings for previous projects completed on the platform.
- Select a lawyer. Hire them to draft your angel investor agreement for a flat fee.
