Investment Agreements

Strategic Legal Advice for Equity Investment, Angel Funding, and Venture Capital Rounds

Equity investment is one of the most important and sensitive moments in the life of a company. For founders, it often means balancing growth capital against dilution, control, and long-term value. For investors, it involves managing risk, governance, and the mechanics of achieving a return. The legal documents used to implement that investment will define those outcomes long after the funding round has completed.

At Jonathan Lea Network, we advise UK companies, founders, angel investors, and venture capital funds on investment agreements, often referred to as subscription agreements and shareholders’ agreements, together with the Articles of Association that underpin them. These documents are not just formalities. They determine who controls the business, how decisions are made, how dilution works, what happens if someone leaves, and how value is shared on exit.

Our role is to ensure that your investment documentation reflects the commercial deal you think you are agreeing, protects your position, and remains workable for future funding rounds, growth, and exit.

What Are Investment Agreements and Why They Matter

A typical equity investment into a UK private company is documented through a connected suite of agreements:

• A subscription agreement, which sets out the terms on which an investor subscribes for new shares, including price, conditions to completion, warranties, disclosure, and completion mechanics. This is the contract that brings the investment money into the company.
• A shareholders’ agreement, which governs the ongoing relationship between shareholders. This document deals with control, reserved matters, information rights, transfers of shares, exit mechanics, and dispute resolution. It is usually a private document and not filed at Companies House.
• Articles of Association, often new or amended articles adopted as part of the investment. The Articles are the company’s constitution and bind all shareholders, including future shareholders. They set out share rights, voting mechanics, transfer provisions, leaver provisions, and exit rights.

Problems arise when these documents are poorly aligned, copied from templates without understanding, or negotiated under time pressure. Common consequences include founders losing control unexpectedly, investors being unable to enforce rights they thought they had, blocked fundraising, or disputes at the point of exit.

Comprehensive Legal and Commercial Support

Our investment agreement service goes far beyond drafting. We advise strategically from the earliest stages of a funding round through to completion and post-investment governance.

Structuring and Sequencing the Investment

We advise on how the investment should be structured before documents are drafted. This includes pre-investment restructuring, creation of new share classes such as preferred ordinary shares, alignment of option pools, and reconciliation with existing constitutional documents.

We also advise on sequencing, including whether the round should complete in stages, how multiple investors should be handled, and how to avoid building in obstacles to future rounds.

Term Sheets and Heads of Terms

Most investments begin with a term sheet or heads of terms. These are usually non-binding, but they are commercially decisive. Poorly drafted heads of terms are one of the most common sources of later disputes.

We help clients negotiate heads of terms that are clear, implementable, and commercially realistic, ensuring that key points such as valuation, dilution, control rights, and exit mechanics can actually be delivered in the formal documentation.

Due Diligence, Warranties, and Disclosure

Investors will expect legal and financial due diligence. We support founders by managing the process, coordinating responses, and ensuring disclosure is handled properly.

We advise on:

• Warranties, which are contractual statements designed to flush out risk.
• Disclosure, usually via a disclosure letter, which qualifies warranties and protects warrantors from liability for disclosed matters.
• Limitations on claims, including caps, thresholds, and time limits, to ensure liability is proportionate and commercially fair.

Where founders are asked to give personal warranties, we negotiate scope, knowledge qualifiers, and liability caps carefully, recognising the personal risk involved.

Subscription Terms and Completion Mechanics

Subscription agreements often include conditions precedent, which must be satisfied before completion, such as adopting new Articles, assigning IP, or entering into service agreements. They may also include conditions subsequent, which allow certain steps to be completed shortly after completion.

We ensure compliance with the Companies Act 2006, statutory pre-emption rights and their disapplication, and Companies House filing requirements, so that the share issue is legally valid and clean for future diligence.

Key Investment Terms We Regularly Advise On

Investment agreements contain technical concepts that have very real consequences. We ensure clients understand what these terms mean in practice.

Dilution and Anti-Dilution Protection

Anti-dilution provisions protect investors if the company raises money at a lower valuation in a later down round. Depending on drafting, these provisions can significantly increase investor shareholdings and dilute founders.

We advise on different approaches, including weighted average and full ratchet mechanisms, and ensure trigger events are limited to genuinely dilutive scenarios rather than normal company activity.

Liquidation Preferences and Exit Waterfalls

Liquidation preference determines who gets paid first if the company is sold or wound up. The liquidation preference waterfall sets out the order of priority between share classes and sometimes between different funding rounds.

The difference between participating and non-participating preference is critical. These clauses can dramatically affect founder outcomes, particularly where exit values are modest. We explain the economics clearly and draft provisions that align with the commercial intent.

For SEIS and EIS investment, we also consider whether preference rights may affect eligibility for tax relief.

Control, Reserved Matters, and Veto Rights

Reserved matters require investor consent for certain decisions. While they are designed to protect investors, overly broad lists can paralyse management.

We help define reserved matters that protect legitimate investor concerns while preserving founder autonomy and operational flexibility. We also advise on consent thresholds and quorum rules to avoid unintended veto power.

Board Composition and Observer Rights

Investors may request board seats or observer rights. Observers can attend board meetings without voting, which can provide visibility without direct control.

We advise on governance structures that balance oversight with effective management and ensure that board and shareholder control mechanisms work together.

Leaver Provisions, Vesting, and Founder Equity

Leaver provisions are among the most sensitive clauses in any investment agreement.

• Good leaver provisions usually apply where departure is outside the individual’s control, often entitling them to fair or market value for shares.
• Bad leaver provisions can apply on resignation, misconduct, or breach, often forcing shares to be sold at nominal value or a discounted price.

We draft these provisions carefully to avoid unfair outcomes and unintended leverage in disputes. We also advise on vesting, including one-year cliffs and reverse vesting mechanics, and how these interact with tax and company law.

Option Pools and EMI Schemes

Investors often require the creation or expansion of an option pool, frequently included in the pre-money valuation. We advise on pool size, dilution impact, and implementation.

We also advise on EMI schemes, which can offer tax-efficient equity incentives for employees if structured and notified correctly. We ensure EMI arrangements sit properly alongside investment documentation.

Pre-Emption Rights and Transfers

Pre-emption rights protect shareholders from dilution and unwanted third-party shareholders.

• Pre-emption on share issues gives existing shareholders the right to participate in new issues.
• Pre-emption on transfers gives shareholders the first right to buy shares being sold.

We advise on drafting that balances shareholder protection with fundraising flexibility.

Convertible Loan Notes, Loan Notes, and Security

Some investments begin as debt, including convertible loan notes that convert into equity later. We advise on conversion mechanics, valuation caps, discounts, and interaction with later shareholders’ agreements.

Where security is taken, such as via a debenture, we ensure charges are properly documented and registered.

We also flag that convertible debt does not generally qualify for SEIS or EIS relief, which is a key planning issue for early-stage companies.

SEIS and EIS Investment Support

SEIS and EIS are powerful incentives for angel investment, but they require careful planning.

We advise on:

• structuring share rights and investment terms to support SEIS or EIS objectives,
• ensuring investment documentation aligns with HMRC requirements, and
• managing compliance processes, including SEIS1, EIS1, and investor certificates.

We work alongside tax advisers where appropriate, ensuring that legal drafting does not undermine intended reliefs.

BVCA Model Documents and Venture Capital Investments

In many venture capital rounds, particularly at Series A stage, the starting point for documentation is the BVCA model documents, including the BVCA model Articles of Association.

These documents are designed as a market-standard framework for UK venture capital investments. They can speed up negotiations and reduce cost, but they are not “one size fits all” and should not be treated as non-negotiable.

When BVCA models are typically used

BVCA documentation is most commonly used where:

• a VC fund is leading the round and expects institutional-style documentation,
• the investment is a priced equity round rather than a simple angel seed round, and
• new share classes and constitutional changes are required.

The BVCA model Articles embed many investor protections directly into the company’s constitution, which means founders need to understand how these provisions operate long after the investment completes.

Negotiating the BVCA models

We regularly advise startups on negotiating BVCA-based documentation. Key areas of focus include valuation mechanics, dilution, board and observer rights, liquidation preferences, anti-dilution protection, reserved matters, founder vesting, leaver provisions, warranties, information rights, and future fundraising flexibility.

We have published a detailed guide on this topic here:

The Main Points In The BVCA Model Documents That A Start-Up Should Negotiate On
https://www.jonathanlea.net/blog/the-main-points-in-the-bvca-model-documents-that-a-start-up-should-negotiate-on/

Our role is not to resist market standards for the sake of it, but to ensure that founders understand what they are agreeing and that the documents reflect a fair and workable balance of risk and reward.

Who We Advise

We act for:

• Founders and SMEs raising capital from pre-seed through to Series C.
• Angel investors and venture capital funds seeking robust, enforceable documentation.
• Corporate investors making strategic minority investments.
• Management teams and employee shareholders affected by vesting, options, and control provisions.

Why Clients Choose Jonathan Lea Network

Clients choose us because we combine legal precision with commercial realism.

• We explain complex terms in plain English before you sign.
• We anticipate future rounds, investor expectations, and exit scrutiny.
• We balance founder autonomy with credible investor protection.
• We focus on getting deals done without storing up problems for later.

Speak to Our Investment Agreements Team

If you are raising capital, investing in a UK company, or preparing for a venture capital or SEIS/EIS angel round, we can help you structure, negotiate, and complete investment agreements that genuinely support growth.

Contact the Jonathan Lea Network today via email or call us to arrange a confidential consultation. We offer an initial no-obligation discussion and, where appropriate, fixed-fee advice so you can move forward with clarity and confidence.

Subscription Agreements, Shareholders’ Agreements, New Articles of Association, and Venture Capital Investment Terms

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