There are four terms or ‘investor protections’ that we ensure are always present in the legal documentation for SyndicateRoom deals: pre-emption rights on the issue of new shares, drag-along and tag-along rights and pro-rata voting rights, regardless of the size of your investment.
Pre-emption rights give an investor the opportunity to ‘follow their money’ as and when a company raises further funding in the future. They give an investor the chance to invest before new investors to maintain their percentage shareholding in the company.
It is worth noting that it is common for a company to have provisions in its legal documents to waive pre-emption rights in certain circumstances and to accept new investors onto a funding round before, or without, allowing existing investors the right to maintain their shareholding. As such, it is important to check what percentage of the shareholder/investor vote is required, or in what circumstances the company can waive the pre-emption rights. This information can be found in a company’s Shareholder’s Agreement and/or Articles of Association.