Investment Agreement Template

In plain language: Identifies the company and investor as legal entities, states the purpose of the agreement, and records the exact dollar amount being invested.

Common mistake: Using a trade name or DBA instead of the registered legal entity name. If the entity name does not match incorporation documents, the agreement may not be enforceable against the correct legal person.

In plain language: States the pre-money valuation, the resulting post-money valuation, the price per share, and the total number of new shares being issued to the investor.

Common mistake: Omitting the fully diluted share count from the valuation calculation. If options, warrants, or convertible notes are excluded from the denominator, the investor's actual ownership percentage at closing will be lower than represented.

In plain language: Specifies whether the investor receives common shares, preferred shares, or a convertible instrument, and describes any special rights attached to that class.

Common mistake: Issuing common shares to investors when the intent was to give liquidation preference and anti-dilution protection. Common shares carry none of these rights unless specifically granted, and amending the share structure after closing is costly.

In plain language: Records the factual statements each party confirms to be true at closing — the company's corporate standing, IP ownership, and cap table accuracy; the investor's accredited status and source of funds.

Common mistake: Copying generic representations without tailoring them to actual due-diligence findings. A warranty that proves false at closing can allow the investor to rescind the deal or claim damages — vague or inaccurate reps create more exposure, not less.

In plain language: Lists the conditions both parties must satisfy before funds transfer — e.g., board resolutions, updated shareholder register, subscription documentation — and states the closing date and wire instructions.

Common mistake: No written closing checklist or conditions precedent. Verbal confirmations of readiness are not enforceable — missing a closing condition quietly and proceeding anyway can invalidate the share issuance.

In plain language: Grants the investor ongoing access to financial statements, management accounts, and material company information for the duration of their investment.

Common mistake: Granting unlimited information rights with no confidentiality obligation attached. An investor who receives sensitive financials, customer lists, or pipeline data with no confidentiality restriction on their use can share it with competitors.

In plain language: Protects the investor if the company later issues shares at a lower price (anti-dilution) and gives the investor the right to participate in future rounds to maintain their percentage (pro-rata).

Common mistake: Granting full-ratchet anti-dilution instead of weighted-average. Full ratchet dramatically increases founder dilution in a down round and is rarely accepted by experienced investors — including it signals unfamiliarity with market standards.

In plain language: States whether the investor receives a board seat, observer rights, or special voting rights — and any matters that require investor approval (protective provisions).

Common mistake: Granting an investor a board seat without defining the removal mechanism or what happens when their shareholding drops below the threshold. Minority investors who retain board seats indefinitely can block decisions long after their economic stake has been diluted away.

In plain language: Drag-along lets the majority compel minority holders to sell in a company acquisition; tag-along lets minority holders join a majority-initiated sale on the same terms.

Common mistake: Including drag-along without a minimum price floor or approval threshold. An uncapped drag-along allows a majority shareholder to force a distressed sale at any price, wiping out smaller investors who have no recourse.

In plain language: Specifies the jurisdiction whose law governs the agreement, how disputes are resolved (arbitration or litigation), and confirms this document supersedes all prior negotiations.

Common mistake: Choosing a governing law with no connection to where either party operates or where the company is incorporated. Several jurisdictions — including Delaware and Ontario — have well-developed corporate case law that offers predictable outcomes; others do not.

An investment agreement is a legally binding contract between an investor and a company that sets out the terms on which capital is provided in exchange for equity or a convertible instrument. It records the investment amount, the company's valuation, the security type being issued, and the rights and obligations of both parties from closing through the life of the investment. It is the foundational document for any private equity or angel investment transaction.

An investment agreement governs the transaction itself — the terms on which new capital is invested and new shares are issued. A shareholders agreement governs the ongoing relationship between all shareholders after closing — including governance, transfer restrictions, drag-along and tag-along rights, and dispute resolution among existing owners. In a simple angel deal, both sets of provisions are often combined in a single document; in a formal VC round, they are separate instruments.

For straightforward seed investments under $500K between parties who have already agreed on the key commercial terms, a high-quality template is a sound starting point. Legal review is strongly recommended when the investment exceeds $500K, when preferred shares with complex rights are being issued, when the investor or company is in a regulated industry, or when the parties are in different countries. A 2–4 hour legal review typically costs $600–$1,500 and is warranted for any deal material to the business.

Pre-money valuation is the agreed value of the company immediately before the investment is made. It determines the investor's ownership percentage: an investor putting in $500K at a $4.5M pre-money valuation owns 10% of a $5M post-money company. Getting the valuation number right — and calculating it on a fully diluted basis — is the most commercially significant variable in the entire agreement.

An equity investment agreement issues shares immediately at an agreed valuation. A convertible note is a debt instrument that converts into equity at a future priced round, typically at a discount (e.g., 20%) and subject to a valuation cap. Convertible notes defer the valuation question to the next round and are faster and cheaper to execute. Equity agreements give the investor immediate ownership but require both parties to agree on valuation at the time of investment.

Standard investor rights at the seed stage include information rights (monthly management accounts and annual audited financials), pro-rata rights to participate in future rounds, anti-dilution protection (typically weighted-average), a board observer seat or full board seat for larger investments, and a short list of reserved matters requiring investor consent. Liquidation preference and drag-along and tag-along rights are also common when preferred shares are being issued.

Anti-dilution protection adjusts an investor's share price downward if the company later issues shares at a lower price — protecting the investor from being penalized in a down round. Broad-based weighted-average anti-dilution is the market standard: it recalculates the investor's effective price based on the weighted average of all shares outstanding. Full-ratchet anti-dilution reprices the entire holding to the new low price and is considered founder-hostile in most markets.

An investment agreement is generally enforceable as a binding contract when it is properly executed by both parties, supported by genuine consideration (the investment funds), and the representations and warranties are accurate at closing. Enforceability depends on the governing jurisdiction and whether any mandatory securities law requirements — such as investor accreditation verification or prospectus exemptions — were satisfied. Consider consulting a lawyer to confirm compliance with applicable securities regulations before closing.

In the US, private investment agreements typically rely on Regulation D exemptions (Rule 506(b) or 506(c)) and require the investor to be an accredited investor. In Canada, securities law exemptions vary by province — the accredited investor exemption and the offering memorandum exemption are most commonly used. In the UK, investments may qualify under the EIS or SEIS schemes. Each jurisdiction has its own filing and disclosure requirements; securities law non-compliance can make a deal voidable and expose the company to regulatory penalties.