The British Private Equity & Venture Capital Association (BVCA) has recently published updated versions of their ‘model’ Series A investment documents, namely the Subscription Agreement, Shareholders’ Agreement and Articles of Association.
These model documents – which were subject to significant amendments in 2023 as set out in our previous briefing note: BVCA remodels its investment documents – offer ‘market standard’ templates of the most frequently used investment documents.
The BVCA advise that their model documents have been drafted for use on a Series A funding round. They are not appropriate for use in earlier seed investment or later Series B/C funding.
A new Summary of Terms has also been published by the BVCA for use at the start of a transaction.
This table below outlines the key changes contained in each updated model document, and the effect they may have for parties subscribing to the agreements.
Provision changed | Summary of change | Commercial impact/other considerations |
|---|---|---|
Model Subscription Agreement | ||
Completion mechanics
| Introduced a short form alternative to the standard completion mechanics which can be used where 100% of funds shall be received prior to completion.
| The changes remove complex wording for instances where it is not needed. |
Regulatory actions
| Inserted an optional provision which would require the company to provide assistance to investors if the transaction is called-in under the National Security and Investment Act 2021 (NSIA) (or is the subject of another regulatory investigation). | If investing in a company which may fall within scope of the NSIA regime (or other regulatory investigation), investors will have the comfort of knowing that the company has contractually undertaken to provide such assistance as may reasonably be required by the investors in relation to such an investigation. If the founders decide it is in the company’s interest to secure this investment it is logical that the company should offer this assistance. |
Warranties
| Amended some of the warranties dealing with intellectual property, business systems and data protection (including, amongst others, new definitions of ‘Know How’ and ‘Patents’) New warranties have been added to cover AI and insolvency. | The additions reflect that the BVCA and the UK market as a whole is taking a greater interest in tech companies and the specific provisions desired when investing in these businesses. The updated wording offers a more comprehensive starting point for investments into tech businesses. |
Model Shareholders’ Agreement | ||
| Restricted information for strategic investors | Inserted optional language to allow the board to restrict access to information for strategic (non-financial) investors in certain circumstances. | As strategic investors will often operate in the same industry as the company, it may be beneficial to restrict their access to certain company information (for example, where the information concerns a matter on which there is a conflict of interest between the strategic investor and the company). |
| Director indemnification | New optional provisions for the company to undertake to enter into an indemnification agreement with each investor director (or otherwise indemnify each investor director directly) in relation to, amongst other matters, their negligence or breach of duty. | Restricting liability may make the investment a more attractive and safer proposal for investors and their appointed investor directors. |
| EIS/VCT | Amended the optional Enterprise Investment Scheme (EIS)/Venture Capital Trust (VCT) undertakings to state that such undertakings are subject to the fiduciary duties of the directors. | The amended undertakings allow the directors scope to consider their fiduciary duties, including their duty to promote the success of the company for the benefit of its members as a whole, when acting pursuant to the EIS/VCT undertakings. |
| Other investments and business opportunities | Inserted wording to clarify that investors can invest in competing companies on the condition that they do not disclose the company’s confidential information. Investors are not required to present investment opportunities they may become aware of to the company. | Reflects market practice wherein investors may have several other investments, or potential investments, which may compete with the business of the company. Aims to ensure than investors aren’t discouraged from investing in multiple companies within the same industry. |
| Undertakings | Inserted additional company undertakings relating to anti-bribery, anti-money laundering, anti-tax evasion, sanctions, governance, and financial policies | This update reflects the general policy aims of UK businesses to act in a transparent and honest manner.
|
Model Articles of Association | ||
| Bad Leavers | Removed the optional drafting in the ‘Bad Leaver’ definition which said that a person who resigns as a service provider (being an employee/consultant etc.) is a Bad Leaver. | This amendment reflects common market practice. The BVCA notes that in its working group’s experience, resignation is rarely a Bad Leaver event. The starting point in the updated model Articles now allows for founders to resign from the business without their shareholding converting into worthless deferred shares. Investors may still insist on including the previous wording (although the BVCA notes that this would be typically called out at the time of agreeing the term sheet), but the starting point in the Articles of Association allows for founders to resign from the business without losing the value of their shareholding. |
| Liquidation Preference | Clarificatory amendments have been made to the waterfall provisions (i.e. how the company’s assets are to be distributed on a liquidation or a return of capital). Amended to narrate that the board, acting reasonably and in good faith, with investor majority consent, may determine what exchange rate shall apply with respect to any amounts designated in different currencies. | With increasing investment by overseas funds into early-stage UK companies, this is a useful mechanism to include, particularly if the capital stack is denominating in multiple currencies. |
| Anti-dilution | Inserted new wording to allow an investor majority to waive the anti-dilution protection, in whole or in part.
| The changes better provide for current market practice where shares with different starting prices may be issued within the single Series A share class.
|
| Sanctions | Inserted wording to provide that the company will not allot or issue new securities to a sanctioned person, and to restrict transfers of shares to sanctioned persons. New provisions have been added to allow the board to require a shareholder to provide information to demonstrate they are not a sanctioned person.
| These new provisions reflect the current political climate and the policy choices to make UK businesses / investments transparent. |
While the updates to the new February 2025 model documents are less material than the revisions made in 2023 (which significantly amended the model documentation), the changes are helpful to both investors and founders and better reflect how Series A investments work in practice.
The updated model articles can be accessed from the BVCA website (you will need to register for a free BVCA website account to view the model documents).
Looking for more detailed analysis of the BVCA documents? Our insight videos on this topic can be found here or contact our corporate finance team for more information.