Open-Source Angel Investment Templates

The origin of these efforts came from our mentoring work in JFDI.Asia, INSEAD Business School & young entrepreneurs seeking advice and meeting with overseas entrepreneurs who plan to move to Southeast Asia or seek investment from investors in Singapore. Working with a corporate lawyer & mentor to JFDI.Asia, Ms Zheng Huifen, we have released these documents as part of our modest and humble contributions to the ever growing entrepreneurial ecosystem in Singapore and out to Southeast Asia.

Disclaimer: The templates are free for use, however the authors 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 we are not able to consult for free as we have our day jobs.

Here are the documents which you can view and download:

1. Convertible Loan: a term sheet (for convertible loans), with a convertible loan investment agreement. If you are asking whether it’s a convertible note or debt, this article can help you to navigate in plain English.
2. Share Purchase and Shareholders’ agreement: a share purchase agreement, an accompanying resolution for the company to issue new shares, and a shareholders’ agreement.

The documents are also available on Scribd:

You can also check out Huifen’s page as she also writes about law and technology.

Updates: Our work have been covered in Tech In Asia, Digital News Asia, E27 and Straits Times (7 Nov 2013, Money, B15).

Here is the official press release for the release of these documents:

The entrepreneurial ecosystem in Singapore has grown rapidly. We see the emergence of accelerators such as JFDI.Asia and Silicon Straits, strong concentration of startups within the iconic Block 71 and large exit activity such as Viki’s US$200M to Rakuten. While a local startup typically starts with Singapore as its initial market and expands to the rest of the world, many entrepreneurs from overseas have also come to set up shop here, either to set up a local entity to attract investment or to use their Singapore base as a gateway to markets in the rest of Southeast Asia.

One interesting trend is that local investors are also starting to invest into the outer rims of Southeast Asia where promising emerging markets of Vietnam, Thailand, Philippines and Indonesia are taking shape. There is growing interest in angel investing as many firms and individuals see technology startups as a promising asset class with high potential rate of return (ROI).

With a flurry of entrepreneurial activity, most entrepreneurs as well as angel investors face immediate challenges regarding the contractual process. 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.

On both sides of the game, there also seems to be a lack of understanding of basic share structure upon incorporation. Sometimes, parties attempt to copy term sheets from other deals which they may not fully understand, and which is unsuitable for the individual situation. This creates a bigger mess because of the difference in jurisdiction & legal structure between US and Singapore. They ended up spending more money on legal tussles when the process could have started simpler.

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. While every startup has their own unique history and every angel investor has their own whims as shareholders, our starting point is that these investment templates are entrepreneur-friendly.

The aim of this open-source project is to facilitate angel funding in Singapore for both startups and angel investors. At the same time, we hope to provide a set of documents to help overseas entrepreneurs from other parts of the world, which incorporate in Singapore with the aim to receive financing from Singapore investors. We have seen many of such requests and hence, we decide to build our solution for both purposes.

In our experience, angel investors are by default friendly to entrepreneurs, already known to the founders, and are focused on the company’s eventual success. They are vital to funding young, promising companies through the Valley of Death. Knowing this, entrepreneurs should not exploit these templates such that it compromises the rights of the investor and the investment.

We are distributing two sets of documents, one for debt and one for equity funding under Singapore law:

1. Convertible Loan: a term sheet (for convertible loans), with a convertible loan investment agreement.
2. Share Purchase and Shareholders’ agreement: a share purchase agreement, an accompanying resolution for the company to issue new shares, and a shareholders’ agreement.

The efforts behind this work are from Huifen Zheng (@AiCalico), a corporate counsel and Bernard Leong (@bleongcw), an experienced early stage investor and entrepreneur. The inspiration for this project comes from their experience in mentoring the teams in JFDI.Asia and guiding entrepreneurs who come from all over the world. We also acknowledge Juanita Sabapathy from Kolibri for sharing the share purchase template and we have made changes to the document such that it is general for use.

Like any start-up, these documents are in their first version and we would update them regularly and also provide more in depth details on the structure as we move along. We hope that the community can help us to improve the documents such that it can become a standard for the entrepreneurial community here in Singapore.

About the authors:

Huifen Zheng (@AICalico) is a Singapore-qualified lawyer and has been a technology/ R&D corporate counsel for several years. She is now a LLM candidate at the University of Edinburgh, specializing in the law of technology and innovation. Huifen writes about technology and law at aicalico.com.

Dr Bernard Leong (@bleongcw) is an angel investor and former co-founder of SGE.io 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 INSEAD Business School. Bernard writes about technology, media and entrepreneurship at bernardleong.com