Angel investors are generally wealthy individuals who provide capital to help entrepreneurs and small businesses succeed. They are known as "angels" because they often invest in risky, unproven business ventures for which other sources of funds -- such as bank loans and formal venture capital -- are not available. New startup companies often turn to the private equity market for seed money because the formal equity market is reluctant to fund risky undertakings. In addition to their willingness to invest in a startup, angel investors may bring other assets to the partnership. They are often a source of encouragement, they may be mentors in how best to guide a new business through the startup phase and they are often willing to do this while staying out of the day-to-day management of the business.
A sample angel investor agreement is a legally binding document that outlines the terms and conditions governing a partnership between angel investors and the entrepreneurs or startups they provide capital to. This agreement serves as a protection mechanism for both parties involved and helps establish clear expectations and responsibilities. Keywords: angel investor agreement, investors, partnership, capital, startups, terms and conditions, protection, expectations, responsibilities. There are various types of sample angel investor agreements that cater to specific needs and preferences of different parties involved. Some commonly used agreements include: 1. Convertible Note Agreement: This type of agreement allows angel investors to lend money to a startup in the form of a loan that can later be converted into equity if certain pre-defined conditions are met. 2. Preferred Stock Purchase Agreement: In this agreement, angel investors purchase specific shares of preferred stock in a startup, offering them certain privileges and rights, such as priority in dividends or liquidation preference, compared to common stockholders. 3. SAFE (Simple Agreement for Future Equity): This agreement, popularized by Y Combinator, allows angel investors to invest money in a startup with the intention of receiving equity in the future, usually upon a subsequent funding round or acquisition. 4. Voting Agreement: This type of agreement focuses on the voting rights of angel investors, where they agree to specific conditions and voting thresholds for important decisions related to the startup's operations, management, or future funding rounds. 5. Right of First Refusal Agreement: This agreement grants angel investors the right to participate in subsequent funding rounds or the opportunity to purchase additional shares of the startup before others, ensuring priority in investment opportunities. 6. Vesting Agreement: This agreement sets forth a vesting schedule for the equity received by angel investors, ensuring that they maintain their financial interest in the startup over a certain period of time, typically including a cliff period during which no equity is vested. By utilizing these different sample angel investor agreements, entrepreneurs and angel investors can establish a mutually beneficial and legally binding framework that protects their interests and helps drive the success of the startup.
Free preview Angel Investor Contract Template
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