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Startup Investment Agreement Template for India

This document serves as a comprehensive legal agreement governing investment in startup companies within the Indian jurisdiction. It outlines the terms and conditions under which investors provide capital to the startup in exchange for equity shares or other securities, while complying with Indian corporate laws, including the Companies Act 2013 and relevant SEBI regulations. The agreement covers crucial aspects such as investment amount, valuation, share allocation, investor rights, governance mechanisms, exit provisions, and protective clauses for all parties involved. It incorporates specific requirements under Indian law regarding foreign investments (if applicable) and includes necessary compliance measures under the Startup India initiative.

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What is a Startup Investment Agreement?

The Startup Investment Agreement is a crucial legal document used when investors are making equity investments in Indian startup companies. This agreement is essential for documenting the terms of investment, protecting the interests of both investors and founders, and ensuring compliance with Indian regulatory requirements. It becomes necessary when a startup is raising capital from institutional or individual investors, whether domestic or foreign, and needs to establish clear terms regarding valuation, share rights, governance, and exit mechanisms. The document must comply with various Indian regulations including the Companies Act 2013, SEBI guidelines, and FEMA regulations (for foreign investments). It's particularly important in the context of India's growing startup ecosystem, where clear legal documentation is essential for future funding rounds and potential exits.

What sections should be included in a Startup Investment Agreement?

1. Parties: Identification of the startup company, founders, and investors with complete details

2. Background: Context of the investment, brief description of the business, and purpose of the agreement

3. Definitions: Definitions of key terms used throughout the agreement

4. Investment Terms: Details of investment amount, valuation, and number/type of shares being issued

5. Conditions Precedent: Conditions that must be satisfied before the investment is made

6. Closing Mechanics: Process and requirements for completing the investment transaction

7. Representations and Warranties: Statements of fact by the company and founders about the business

8. Investor Rights: Rights granted to investors including information rights and board representation

9. Transfer Restrictions: Limitations on transfer of shares and related rights of first refusal

10. Tag-Along and Drag-Along Rights: Rights of investors to join in sale of shares or force other shareholders to sell

11. Anti-Dilution Protection: Protection for investors against future dilution of their shareholding

12. Covenants: Ongoing obligations of the company and founders

13. Events of Default: Circumstances constituting breach and corresponding remedies

14. Exit Rights: Provisions regarding IPO, strategic sale, or other exit mechanisms

15. Governing Law and Jurisdiction: Applicable law and courts having jurisdiction

16. Miscellaneous: Standard boilerplate provisions including notices, amendments, and severability

What sections are optional to include in a Startup Investment Agreement?

1. Founder Vesting: Include when founders' shares need to be subject to vesting schedule

2. ESOP Pool: Include when creating or reserving employee stock options

3. Foreign Investment Compliance: Include when there are foreign investors requiring FEMA compliance

4. Special Rights for Lead Investor: Include when lead investor requires additional rights or protections

5. Non-Compete and Non-Solicit: Include when specific restrictions on founders' activities are required

6. Intellectual Property Assignment: Include when IP transfer from founders to company needs to be documented

7. Bridge Financing Provisions: Include when the investment is bridge funding with conversion rights

8. Strategic Investor Rights: Include when investor brings strategic value beyond capital

What schedules should be included in a Startup Investment Agreement?

1. Schedule 1: Cap Table: Pre and post-investment shareholding pattern

2. Schedule 2: Subscription Details: Detailed breakdown of investment amount and shares

3. Schedule 3: Conditions Precedent: Detailed list of conditions to be satisfied before closing

4. Schedule 4: Warranties: Comprehensive list of company and founder warranties

5. Schedule 5: Company Information: Key corporate and business information about the startup

6. Schedule 6: Identified Assets: List of key assets including IP rights and material contracts

7. Schedule 7: Disclosure Schedule: Exceptions to warranties and representations

8. Appendix A: Board Composition: Details of board structure and governance mechanisms

9. Appendix B: Reserved Matters: List of actions requiring investor approval

10. Appendix C: Deed of Adherence: Template for future shareholders to join the agreement

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

India

Publisher

Ƶ

Cost

Free to use

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