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BVCA model documents for early-stage investments: what’s changed?

The BVCA has revised and re-launched its standardised documents for early-stage venture capital investment after a review involving the BVCA’s legal and accounting committee and a working group comprised of experts from the investor and legal community.

What is the BVCA?

The British Private Equity & Venture Capital Association (BVCA) is the industry body and public policy advocate for the private equity and venture capital industry in the UK, comprising over 700 firms.

Who do they represent?

The BVCA support and represent institutional investors, fund managers, portfolio companies, advisers and service providers.

Model document changes

The BVCA provide model legal documentation which the industry is encouraged to use as a starting point for their deals. This helps standardise deal terms which ultimately saves time and money for parties.

These model documents have just been updated in February 2023 to reflect changing market trends which include a significant rise of US capital flowing into the UK market.

The updated documents include forms of subscription agreement (together with a disclosure letter), shareholders’ agreement and articles of association.  The subscription agreement is now a stand-alone document having been previously part of the shareholders’ agreement.  

Below is a summary of some of the main changes made in each model document. For more detailed information and to download the documents, please refer to the BVCA’s website.

Subscription agreement

  • introduced concept of lead investor for easier decision-making process
  • included drafting to allow for the issue of shares to convertible loan holders
  • completion mechanics made clearer to reflect a more accurate sequence of events
  • warranties no longer being given by the founders, only by the company
  • warranties streamlined and updated for example, data protection warranties
  • limitation period reduced to 18 months for all warranty claims and de minimis and aggregate claims thresholds removed
  • added in model disclosure letter as appendix
  • no general disclosure of any data room or due diligence document

Shareholders’ agreement

  • all of investor consent matters now contained in schedule rather than articles
  • all of board appointment rights moved into articles
  • streamlined execution provisions so can be updated from funding round to round
  • included new workplace policies

Articles of association

  • founder board rights limited to term of employment
  • pre-emption rights restricted to investors or major investors only which allows further fundraising from existing investors
  • variation of class rights now only needs consent of the holders of a majority of the class, rather than 75% of the shares
  • all shareholders now subject to lock up on an IPO, incorporated into articles save signing up individual shareholders
  • dragged shareholders will now be liable equally with the dragging shareholders for any contribution towards costs on a sale, such as price adjustment mechanisms
  • bad leaver definition much narrower but will now lose all of their shares as opposed to losing them on a sliding scale as before. Resignation is now an optional trigger for bad leaver provisions as losing all shares due to resignation may not be appropriate in all circumstances
  • new holding company to be allowed to be put in place without the consent of all shareholders

What the changes could mean for those seeking early-stage investment

The changes should be welcomed by those seeking early-stage investment as the updates should result in a simpler deal process and more founder-friendly terms. Many of the stickier negotiation points have been removed which should keep legal costs down and make the deal process a lot more efficient. 

Terminology and concepts have been added into the documents to make the deal terms easier to understand for founders and investors. This should allow them to feel more in control of the process and in turn create more confidence in the market. The documents have also been made more consistent with US deal terms which should make trans-atlantic deals smoother.

Next steps

The BVCA is planning to set up a working group for regular review of the model documents to incorporate any tweaks and updates as they are start to be used in the market. It is also due to publish an updated term sheet and further ancillary documents in the near future.

If you’re approaching a funding round and need assistance with legal documentation, getting the most value out of your business and ensuring you’re attractive to investors, please contact our funding legal experts. Phone us on 0800 689 1700 or fill out the short enquiry form below and one of our team will be in contact.

About our expert

Jas Bhogal

Jas Bhogal

Corporate Partner
Jas qualified as a solicitor in 2006. She has 12 years' experience working almost exclusively with start up companies, high growth potential SMEs, along with venture capitalists, other investment platforms and individual and corporate investors.

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