– Start-ups and investors in Asia can look towards a faster and more cost- efficient process of structuring a deal with the help of Venture Capital Investment Model Agreements, a joint-initiative by the Singapore Academy of Law’s (SAL) Promotion of Singapore Law Committee and the Singapore Venture Capital & Private Equity Association (SVCA).
The Venture Capital Investment Model Agreements (VIMA) was launched by Chief Justice Sundaresh Menon at the SAL 30 anniversary dinner this evening.
Speaking at the launch, CJ Menon said, “This initiative complements the national efforts to foster the growth and vibrancy of the venture capital eco-system in Singapore; and we also expect the VIMA will play a key role in driving the adoption of Singapore law for early-stage financing transactions as the model agreements will all provide by default that they are to be governed by Singapore law and that any disputes arising therefrom will be resolved in Singapore. ”
Incorporating Singapore law as the governing law and Singapore as the chosen dispute resolution forum, the VIMA comes amidst the increasing recognition and acceptance of Singapore as an international dispute resolution hub, and Singapore law as a well-suited choice for governing regional transactions.
Singapore is also fast emerging as a buoyant regional hub for start-ups and a gateway for Venture Capital investments into Southeast Asia. According to the SVCA, Venture Capital investments into Southeast Asia totalled US$2.7 billion in 2017, and for the first eight months of this year, has already surpassed this mark to reach US$3.2 billion. The VC Investment Model Agreements will help to facilitate more efficacious investment rounds, translating into more dynamic deal flows among start-ups and investors.
Tailored closely to the essential requirements of start-ups, investors and the legal industry, the VIMA comprises a pragmatic set of contracts that balances the interests of both the investor and company so as to narrow the scope of open issues and negotiation by the parties, thereby “short-cutting” and helping all parties involved to reach common ground quicker.
“Vertex Ventures invests in high-growth start-ups seeking their first round of institutional venture capital funding across the world, including US, Israel, China, India, Southeast Asia, and a global healthcare fund. We believe that the VC Investment Model Agreements is a great initiative that will help to bring clarity and consistency to VC documentation. Over time, people’s confidence in the VC investment process will also grow. I’m glad to see that the model agreements seek to provide a balance between the interests of the VCs and the founders. We are definitely supportive of this initiative and hope to see more standard form contracts covering more advanced financing rounds in the future,” said Mr Chua Kee Lock, Managing Partner, Vertex Ventures SE Asia & India.
The model agreements contain explanatory notes to help users decide the position they wish to take based on their relative bargaining positions, including a VC lexicon to align the meanings of jargons and terms used in the industry. To make the VIMA user-friendly, the documents are kept relatively simple and readable.
“We are glad to see the introduction of such standard form contracts as it means that we no longer need to draft such contracts from scratch. This will definitely make the process simpler, faster and more cost efficient. The availability of the VC Investment Model Agreements, and especially the lexicon, will be helpful for new founders raising their initial round of financing,” said Jeffrey Tiong, Founder & CEO, PatSnap Pte Ltd.
The documents do not attempt to cover the entire spectrum of options in a VC transaction but instead aim to document how an early stage financing transaction is typically structured, leaving parties to focus their time on addressing and negotiating more bespoke and deal specific issues to suit their own preferences for incorporation into the documents.
For a start, the VIMA comprises an initial slate of legal documents targeted at the pre-Series A and Series A round of financing. More form documents will be added on as appropriate to meet the needs of stakeholders in the VC industry. Existing forms will also be refreshed periodically to keep up with the changing VC landscape. There are also plans for SAL and law firms to conduct teach-in sessions to help educate and inform users.
The VIMA is the culmination of an industry-wide consultation and collaboration by more than 30 venture capitalists, domestic and international law firms and Singapore agencies, including the Law Society, leading international law firms and Valley firms operating in the region. This initiative is supported by a Working Group comprising Singapore law firms Allen & Gledhill LLP, WongPartnership LLP, and global law firm Clifford Chance LLP, together with Singapore-headquartered investment company Temasek.
The Venture Capital Investment Model Agreements (VIMA) comprise the following documents:
This sample confidentiality agreement assumes a company is providing confidential information about itself to a potential investor looking to invest in such company. The confidentiality agreement should be entered into with the recipient before the distribution of the confidential information. Typically, for early stage financing rounds (including up to Series A financing rounds) it is common for VCs/other investors to not enter into confidentiality agreements and instead enter into a term sheet with the company/founders directly.
A term sheet sets out key terms and conditions pursuant to which an investor (or group of investors) will subscribe for shares in a company. It also sets out the ongoing rights and obligations of the investors, founders and the company in relation to such company. Except for certain provisions, a term sheet is a non-binding agreement and the relevant parties must enter into binding agreements to give effect to its terms.
This sample term sheet should be customized to consider the capital structure of the company (including any rights existing investors may have).
The sample document assumes that an investor is making a cash investment in a Singapore incorporated private company, in exchange for receiving either shares in such company or cash upon occurrence of certain events.
It has certain flexible features and allows the investor and company to customize such features, which are further explained through the explanatory notes in the sample document.
Typically, this type of instrument is used in seed / early-stage (pre-Series A) financing rounds. Advice from an accountant should be sought to confirm whether this CARE Agreement qualifies as debt or equity.
A subscription agreement sets out the terms and conditions pursuant to which an investor (or group of investors) will subscribe for shares in a company.
A shareholders' agreement sets out the key terms and conditions regulating the affairs of the company and the rights and obligations of the investors and founders as shareholders of the company.
SAL is a promotion and development agency for Singapore’s legal industry. Our vision is to make Singapore the legal hub of Asia.
SAL works with our stakeholders to set new precedents of excellence in Singapore law through developing thought leadership, world class infrastructure and legal solutions. Our mandates are to build up the intellectual capital of the legal profession by enhancing legal knowledge, raise the international profile of Singapore law, promote Singapore as a centre for dispute resolution, and improve the standards and efficiency of legal practice through continuing professional development and the use of technology.
As a body established by statute, SAL also undertakes statutory functions such as stakeholding services and appointment of Senior Counsel, Commissioners for Oaths and Notaries Public.
SAL is led by a Senate headed by Chief Justice Sundaresh Menon, and comprising the Attorney-General, the Supreme Court Bench and key leaders of the various branches of the legal profession. It has more than 12,000 members, including the Bench, all persons who are called as advocates and solicitors of the Supreme Court (i.e. the Bar) or appointed as Legal Service Officers, corporate counsel, faculty members of the three local law schools (i.e. National University of Singapore, Singapore Management University and Singapore University of Social Sciences) and foreign lawyers in Singapore.
More information can be found at www.singaporelawwatch.sg.
The Singapore Venture Capital & Private Equity Association (SVCA) was formed in 1992 to promote the development of the venture capital (VC) and private equity (PE) industry in Singapore and the broader Southeast Asian region.
SVCA’s mission is to foster greater understanding of the importance of VC and PE to the economy in support of entrepreneurship and innovation and to look after the interests of our members. The Association strives to promote the professional development of the industry as well as facilitate interaction and collaboration among its members. The Association also acts as a platform for dialogue on regulatory and policy issues pertaining to VC and PE and builds linkages to centres of VC and PE activities in the region.
More information can be found at www.svca.org.sg.