Term sheets and share transfer documents that can help entrepreneurs and angels navigate legal complexities
Documents free for use; follow Singapore laws but can be helpful for foreign startups seeking funding there
SINGAPOREAN angel investor Bernard Leong and lawyer Huifen Zheng have launched a set of open source term sheets and share transfer documents that they believe would help both entrepreneurs and angel investors navigate the complexities of the legal documents associated with the fundraising part of startups.
“With a flurry of entrepreneurial activity, most entrepreneurs as well as angel investors face immediate challenges regarding the contractual process,” the two said in a statement.
“Most entrepreneurs are technically trained, and struggle with the lack of legal knowledge to structure the control and the economics of the investment. Not many startups can afford the legal fees required to draft and negotiate investment contracts. This puts founders at a disadvantage.
“With a poor legal foundation, we have also seen how a startup starting off with a bad term sheet with investors ended in grief when their companies are swallowed by vulture-type investors seeking a quick flip instead of value creation.
“The same problem may also affect individual angel investors who are new to the game. Their lack of understanding of basic term sheet clauses and due diligence also cost them when their investments are diluted by later rounds of financing,” they said.
The duo said that both sides may lack an understanding of basic share structure upon incorporation, and sometimes copy term sheets from other deals which may be unsuitable for their own situation.
So they are distributing two sets of documents, one for debt and one for equity funding under Singapore law:
Convertible Loan: A term sheet (for convertible loans), with a convertible loan investment agreement (click here to download); and
Share purchase and shareholders’ agreement: A share purchase agreement (click here to download), an accompanying resolution for the company to issue new shares, and a shareholders' agreement (click here to download).
The aim of this open-source project is to facilitate angel funding in Singapore for both startups and angel investors; and also to help overseas entrepreneurs from other parts of the world which incorporate in Singapore with the aim of receiving financing from Singapore investors.
The documents would also be “helpful for Malaysian startups which are planning to set up in Singapore and seek Singapore investors on fundraising,” Leong told Digital News Asia (DNA) in an email.
These documents are in their first version and would be updated regularly, the two said in their statement. The templates are free for use, however the authors said they 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,” they said.
The authors said they welcome questions and comments to improve the templates, but are not able to consult for free as they have their day jobs.
Zheng and Leong said their project was inspired by their experience mentoring teams in the Joyful Frog Digital Incubator (JFDI.Asia), and added that Juanita Sabapathy from Kolibri also contributed to the documents.
Zheng is a Singapore-qualified lawyer and has been a technology/ R&D corporate counsel for several years. She is now an LLM candidate at the University of Edinburgh, specialising in the law of technology and innovation. She writes about technology and law at aicalico.com.
Leong is an angel investor and cofounder of SGE.io, which was acquired by Tech In Asia recently. He has invested in iHipo (acquired by PotentialPark), Padlet (who is now with Y-Combinator) and Lunch Actually. He also serves as an entrepreneur-in-residence for the INSEAD Business School. He writes about technology, media and entrepreneurship at bernardleong.com.
Angels with pitchforks, VCs who don't venture
Counterpoint: The case for angels and VCs
Weak VC leadership letting Asean region down: Catcha chief
Start-ups and deals, Malaysian style
For more technology news and the latest updates, follow @dnewsasia on Twitter or Like us on Facebook.