Following active steps taken by the Singapore government to establish Singapore as a regional hub for startups and venture capital investments, Singapore’s startup ecosystem has flourished in recent years, contributing to a vibrant local venture capital space. In support of the government’s efforts, a working group was formed in 2018 consisting of, amongst others, the Singapore Academy of Law and the Singapore Venture Capital and Private Equity Association to develop a set of model agreements for use in seed rounds and early stage financing known as the Venture Capital Investment Model Agreements (VIMA documents). Similar initiatives have been undertaken in other jurisdictions, which have resulted in the creation of model agreements for early stage financing transactions in, among others, Australia, by the Australian Investment Council (AVCAL” documents); in the United Kingdom, by the British Private Equity and Venture Capital Association (BCVA documents); and in the United States, by the National Venture Capital Association (NVCA documents).
We note that each jurisdiction has prepared their various model agreements in consultation with local practitioners and industry stakeholders, and hence the model agreements reflect the differences in business cultures and the different stages of maturity of the venture capital scene in each jurisdiction. For example, the United States has a more developed venture capital market, with approximately US$113 billion of investments in the venture capital scene in 2018, compared with US$5 billion for Singapore, US$2 billion for the United Kingdom and US$400 million for Australia during that period.
Amidst the COVID-19 pandemic, venture capital has slowed in Singapore, with most investors regarding COVID-19 as having a negative impact on early stage investment activity in the short term. However, there is also a marked increase in interest in investments in the healthcare sector and remote-working solutions industry. Despite the current slowdown, continual investment is being made in the venture capital and startup sector. In order to continue building on Singapore’s ecosystem in such areas, the Singapore government has allocated significant resources to businesses during the economic downturn, including special funding to catalyse and match private investments in the startup space to enable startups to sustain innovation and entrepreneurship activities, and supporting credit schemes for startups. In light of this, it is worthwhile to revisit the VIMA documents and consider the degree to which the VIMA documents can act as a suitable base for future transactions. We note that as of the date of this article, the Singapore Academy of Law has also commenced a consultation process on this first generation of VIMA documents.
This Alert provides a comparative analysis of the VIMA documents against the AVCAL, BVCA, and NVCA documents. For purposes of this article, only the transaction documents common across each set of model agreements will be analysed, which are specifically the term sheet, subscription agreement and the shareholders’ agreement. By considering the approaches taken by the various organisations in the different jurisdictions with respect to the key terms in each relevant transaction document, we hope to provide both investors and founders (as well as their respective advisers) with fresh perspectives on how such key terms may be negotiated to better protect each of their interests. While the VIMA documents provide parties with a useful starting point, they will ultimately still need to be tailored to capture the commercial intention of parties in each specific early stage investment.
For easy reference, we have also set out in the Annex a comparative summary of the approaches taken by the VIMA, AVCAL, BVCA and NVCA documents with respect to the key terms discussed in the in the subsequent sections.