What is an Investment Agreement?
An Investment Agreement is a contract between founders and investors who would like to purchase shares of an existing company. The incoming investor can be a new shareholder, an external investor, or even an existing shareholder. The Investment Agreement outlines the rights and responsibilities of the incoming shareholders, as well as imposing restrictions on the exercise of power. Terms and conditions are laid out clearly to the incoming company owners. It is crucial for founders to raise capital by attracting investment from angel investors and investment companies. With a larger capital, they could accelerate business growth drastically by increasing business size.
Public Investment vs Private Investment
Capital raising can be done by both private and public equity transactions. A public capital raising usually refers to companies that have already achieved Initial Public Offering (IPO) on the stock market. Stricter and more requirements are needed for a take-private (public to private, P2P) transaction.
For instance, the certainty of funds must be secured when a firm offer for a public company is announced. The conditions that give rise to its effectiveness and the rights to terminate it must not be unconditional, so as to comply with the requirements of a take-private investment transaction. In other words, the Investment Agreement needs to be limited.