An equity investment agreement is an important legal document between investors and startups when raising capital. A simple, clear agreement template helps both parties understand rights and obligations easily. When drafting a simple equity investment agreement, key points include specifying investment amount, equity percentage, investor rights, founder obligations, intellectual property ownership, governing laws, liability caps, exit timing, and confidentiality. Using clear language on capitalization, liquidation preference, pro rata rights, vesting schedules, and repurchase rights also avoids disputes. Additionally, including dispute resolution and amendment procedures makes agreement enforceable and flexible. With a well-drafted simple agreement template centering on equity investment terms, startups can smoothly raise funds from angel investors.
Clearly state investment amount and equity percentage granted
The core of any equity agreement is the amount being invested and the percentage of equity granted in return. A simple template should clearly state the investment dollar amount, whether in a single round or tranched, and the precise percentage of equity ownership the investor receives. Common equity percentages are 10-25% for angel investors. The agreement should also specify equity types – common shares versus preferred shares with liquidation preferences. Defining this upfront aligns expectations on the investment-equity exchange.
Specify investor rights to enable investor oversight
While founders run the daily business, investors want rights to oversee major decisions to protect their capital. Key rights to outline include information rights, voting rights, board representation, right of first refusal on future fundraising, and co-sale rights. Information rights allow periodic reports on company financials and operations. Voting rights give investors votes on new equity issuance, asset sales, or mergers. Board seats let investors monitor governance. Rights of first refusal and co-sale rights prevent unwanted dilution. Outlining these in a simple template prevents misunderstandings.
Detail founder obligations to drive company growth
In return for capital, founders have obligations to grow the company through business execution. Founder obligations that a simple agreement template should capture include focusing full-time on the startup, achieving performance milestones on time, maintaining proper financial records, and disclosing material events. These obligations foster trust that founders are committed to the startup’s success. The template can specify that violations allow the investor to take protective provisions like liquidation or redemption of shares from founders.
Clarify intellectual property ownership early
For startups centered around proprietary technology or IP, the simple equity investment agreement must clarify asset ownership rights. Founder IP predating the company should be excluded. Any IP created after founding by either founders or employees should be assigned to the company through an IP assignment clause. This ensures the company, not individual founders, owns IP created using investor capital. Standard clauses can also protect confidentiality of proprietary information.
Specify clear governing laws to enable enforcement
Equity investment agreements require legal teeth to enforce if disputes arise. The template should state governing laws, usually the state of incorporation, to clarify which jurisdiction applies for resolving disputes. This enables filing lawsuits locally if founders violate investor rights or neglect obligations. Given larger dollar investments, a California governing law clause is common even for startups incorporating in Delaware.
A simple equity investment agreement template enables smooth fundraising by aligning investor and founder expectations. Key areas to cover are investment amount, equity percentage, investor rights, founder obligations, IP ownership, governing laws, and other standard protective provisions. With clear, reasonable terms on equity and control, both startups and angel investors can focus on business execution and value creation.