AI investor agreement generator

Investor agreements explained

• What is an investor agreement?

  An investor agreement is a contract that outlines the terms and conditions of an investment in your company. It defines the relationship between your business and investors, which can include elements such as equity stakes, voting rights, board representation, and exit strategies.
  
  Investor agreements establish clear expectations, define investor rights, and set the framework for your company's growth. They're essential for maintaining transparent relationships and creating structure for future funding rounds.

• Can the terms of an investor agreement be negotiated?

  Yes, investor agreement terms are typically negotiable. Both companies and investors expect to discuss and refine terms before finalizing. Common negotiation points include valuation, board composition, liquidation preferences, and protective rights.
  
  Negotiations often begin with a term sheet outlining key provisions. Factors like company traction, investor competition, and funding alternatives influence negotiating position. Our AI generator can help create agreements with terms that provide a starting point for discussions.

• How is an investor agreement different from an investor letter?

  An investor agreement and an investor letter serve different purposes:
  
  Investor agreement: A contract that governs the investment transaction and ongoing relationship. It includes specific terms like equity percentages, valuation, board rights, and exit provisions. The agreement is negotiated and signed before funding occurs.
  
  Investor letter: A communication tool that provides regular updates about company performance, milestones, and strategic decisions. These are typically sent quarterly or monthly after investment. While important for transparency, investor letters don't modify agreement terms.
  
  The agreement establishes the relationship rules, while letters maintain ongoing communication. 

• What are the risks of a SAFE agreement?

  A SAFE agreement, or Simple Agreement for Future Equity, is a type of investor agreement designed to offer a faster, simpler way for startups to raise capital. Unlike traditional equity agreements, SAFEs delay ownership and valuation discussions until a future financing event. While they benefit from early-stage funding, they also carry specific risks for both founders and investors.
  
  For founders: SAFEs can lead to unexpected dilution when converting, especially with multiple SAFEs. Without valuation caps, founders might give away more equity than anticipated. The lack of maturity dates means SAFEs can remain outstanding indefinitely.
  
  For investors: SAFEs provide no guarantee of equity conversion if the company never raises a priced round. They offer limited rights compared to traditional equity, with no board seats or voting rights until conversion.
  
  Mitigation strategies: Use valuation caps and discount rates for conversion clarity. Consider including conversion triggers based on milestones or time limits. Our generator will assist you in  structuring SAFE agreements with appropriate protections.

• Are SAFE agreements legally binding?

  Yes, SAFE agreements are enforceable contracts when properly executed. Created by Y Combinator and widely used in the startup ecosystem, SAFEs create obligations for both companies and investors when signed by authorized representatives.
  
  SAFEs should clearly specify the investment amount, conversion triggers, and any caps or discounts. Our generator can help make SAFE agreements to meet your requirements.

• When should you create an investor agreement?

  Several scenarios make creating an investor agreement essential:
  
  Seed funding rounds: When raising initial capital from angel investors or early-stage funds, an agreement establishes your cap table foundation. Our generator can help you create appropriate terms for early investments.
  
  Series A and beyond: As you scale, agreements become more complex with provisions for board seats and protective rights. The generator can assist in handling sophisticated terms while maintaining clarity.
  
  Strategic partnerships: When bringing in investors who offer industry expertise or distribution channels, your agreement should reflect these unique relationships. Our AI assistant can help you include both financial and strategic elements.
  
  Convertible instruments: For companies using SAFEs or convertible notes, proper documentation is crucial. The generator will work with you to create agreements with clear terms.
  
  Key terms to consider
  
  Equity percentage: Define ownership stakes - Specify the exact percentage being purchased and the calculation basis.
  
  Valuation and pricing: Set company value - Include pre-money valuation, price per share, and any valuation caps.
  
  Board composition: Governance structure - Detail board seat allocations and voting thresholds.
  
  Protective provisions: Investor rights - Define veto rights over major decisions like additional fundraising or significant expenditures.
  
  Liquidation preferences: Exit scenarios - Describe distribution order and participation rights.
  
  Anti-dilution protection: Future round considerations - Specify protection type and triggers.