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10 Tips on Drafting Investment Agreements for Your New Zealand Start-Up

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Securing investment is an essential requirement for start-ups looking to grow and scale its operations. As such, drafting a comprehensive investment agreement in your start-up’s early stages is essential for protecting the start-up’s and its investors’ interests. A pre-drafted investment agreement might even inspire potential investors to take a leap and invest in your new business. This article will take you through ten tips for drafting legal investment agreements for your New Zealand start-up.

1. Understand the Parties Involved 

It is important to understand the parties involved before considering the contents of the investment agreement. As a starting point, this step requires you to:

  • identify the investor, whether it be a venture capital firm or an angel investor;
  • consider the objectives of each investor; and 
  • identify any specific terms or conditions that each investor might require. 

Similarly, you should carefully consider your start-up’s:

  • goals;
  • funding requirements;
  • how you will use investment funds; and
  • what you are willing to offer investors. 

The objectives of both sides will lay the very foundation of your investment agreements.

2. Clearly Define the Agreement Terms

Precise language is a non-negotiable in investment agreements. This helps minimise misunderstandings about the terms and can even help avoid disputes later. Key provisions you must include are the:

  • investment amount;
  • equity stake;
  • rights and responsibilities of each party; and 
  • the terms of the investment.
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3. Specify Investor Rights

Investment agreements should clearly define the rights granted to investors. This includes the:

  • voting rights; 
  • anti-dilution protection;
  • liquidation preferences; 
  • exit rights; and
  • any other special rights or privileges that investors may have (e.g., board representation or veto rights).

4. Address Regulatory Compliance

You must ensure that the investment agreement complies with New Zealand’s laws and regulations. This includes:

  • securities laws; 
  • tax laws; and 
  • any industry-specific regulations. 

Seeking legal advice will help ensure compliance and reduce the risk of encountering any regulatory issues or penalties.

5. Add Anti-Dilution Provisions 

Anti-dilution provisions are necessary for safeguarding investors’ interests. These provisions usually include rights to maintain a percentage of ownership in future funding rounds. These provisions may also grant investors consent rights for significant corporate actions and other protections against changes to the start-up’s capital structure that will adversely impact them. Adding in these provisions will help encourage investment into your start-up.

6. Address Intellectual Property Rights 

Your investment agreement must address the ownership rights and use of intellectual property rights. This includes all intellectual property related to the start-up’s productions and assets. You must be careful to specify any:

  • existing licensing agreements;
  • non-disclosure and confidentiality obligations; and
  • restrictions on the use of proprietary information.

Failure to incorporate intellectual property protections into our investor agreements will jeopardise the competitiveness of your start-up in the long term. 

7. Establish Your Management Structure

Your investment agreement is a useful opportunity to define the management structure of your start-up. This includes the composition of the board of directors and who is more broadly responsible for making decisions and management. It is a good idea to specify the individual powers of the investors and co-founders so that every party understands their rights and responsibilities. 

8. Include Dispute Resolution Mechanisms

Investment agreements should always include dispute resolution mechanisms such as mediation or arbitration. The agreement should outline the procedures for resolving disputes in a timely and cost-effective manner. It should also refer to the governing laws that apply to the agreement so all parties can easily refer to it if needed.

9. Refer to Exit Strategies

The exit strategies for both investors and the start-up itself should be addressed in the investment agreement. This includes any rights to first refusal, buy-back provisions and more. The agreement should consider all possibilities, including mergers and acquisitions or even dissolution of the start-up.

Finally, drafting investment agreements requires careful consideration of various legal, financial and commercial factors. As such, you must work with qualified legal professionals with relevant experience to ensure that the agreement protects your interests and complies with the relevant laws and regulations.

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Key Takeaways

Drafting a comprehensive investment agreement is a critical component for protecting the interests of the start-up and its investors. Some key tips for drafting investment agreements for your New Zealand start-up include:

  • understanding the parties involved;
  • clearly defining the agreement terms;
  • specifying investor rights;
  • addressing regulatory compliance;
  • adding anti-dilution provisions;
  • addressing intellectual property rights;
  • establishing your company’s management structure;
  • including dispute resolution mechanisms;
  • referring to exit strategies; and
  • seeking legal advice.

If you need help preparing investment agreements for your start-up, contact our experienced start-up lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.  

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Emily Young

Emily Young

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