The British Private Equity and Venture Capital Association (BVCA) finalized its new set of standardized deal documents for early stage venture capital investors in order to reduce time and cost burdens on VC firms.
BVCA’s goal is for these templates to become widely used throughout the industry so that both firms and their legal advisors are more familiar with common commercial terms under negotiation, an achievement the US venture capital industry has already achieved with the support of the National Venture Capital Association.
The initiative followed up on the BVCA’s first campaign to create model documents in 2006, an effort that did not gain significant traction. In February, the BVCA launched the consultation stage of its revised and updated versions of the old templates.
The new documents include model articles of association, a model subscription and shareholders' agreement, a model term sheet for a Series A round investors and a technical briefing on the accounting treatment of preferred shares, according to the BVCA website.
One important change to the previous documents is that the shareholders' agreement has now been converted into a simple contract, rather than a deed, in order to eliminate the complex execution formalities of a deed format, according to a client memo from law firm King & Wood Mallesons SJ Berwin.
The note on the accounting treatment of preferred shares issued by investee companies to VC investors is also new, and aims to help firms determine how these shares need to be shown on the balance sheet of the company.
BVCA’s goals to streamline the documentation process and reduce transaction costs will only be achieved should the industry embrace the new standards, which seems likely according to King & Wood Mallesons SJ Berwin.
“Whether these initiatives succeed will depend on whether enough market participants are willing to accept and use the templates,” noted the memo. “No doubt some will feel wedded to their own tried and tested documents, but the early signs are that many firms are willing to make the switch.”