As mentors at Singapore-based accelerator JFDI, lawyer Huifen Zheng and angel investor Bernard Leong noticed a trend: While startups and angel investors may know about business creation or app development, they lack legal knowledge abouts investments.
Few startups can afford the legal fees needed to draft and negotiate investment contracts, putting founders at a disadvantage against venture capitalists.
“This opens them up to vulture-type investors seeking a quick flip instead of value creation,” Bernard and Huifen wrote in a press release.
Also, angel investors who lack understanding of term sheet clauses and due diligence may be burnt when their investments are diluted by later rounds of funding.
As a result, it’s common practice to copy term sheets from other deals in other countries in an uninformed manner, but the documents may end up not suiting the individual context due to, for example, the different legal jurisdictions between the United States and Singapore. They could end up wasting money on legal tussles. The press release continues:
In view of these hurdles facing founders and investors, we decided to follow the spirit of what Y-Combinator did years ago: launching a set of open source term sheets and share transfer documents.
The templates are designed to be friendly to entrepreneurs and specific to the Singapore context. It applies to foreign founders who want to incorporate a company in the country. While there’s been a number of attempts in the past to help startups navigate investment legalities (see James Chan series on “Term sheets from hell and JFDI’s transparent terms for investment), this is perhaps the first time in Singapore full legal templates are made available online for startups to use.
Bernard and Huifen have released two sets of documents, one for convertible loans and another for equity funding.
The convertible loans set includes a term sheet and an investment agreement while the equity funding set includes a share purchase agreement, a shareholders’ agreement, and a resolution for the company to issue new shares.
These documents will be improved upon based on community feedback (tweet them at @bleongcw and @aicalico). In the coming days, the duo will also provide more explanation about the structure of the documents.
Disclaimer: The templates are free for use, however the authors (Bernard and Huifen) and Tech in Asia cannot be responsible for the consequences of use. Startups and investors alike should read and understand the templates and determine the suitability for their particular situation. If in doubt, you should consult professional advisors. The authors welcome questions and comments to improve
the templates but they are not able to consult for free as they have their day jobs.
(Editing by Willis Wee)