Seed investment agreement

curl -X POST https://dealroom.todo.law/api/v1/agent/contracts \
  -H "Authorization: Bearer drk_YOUR_KEY" \
  -H "Content-Type: application/json" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "contractType": "SEED_INVESTMENT",
    "governingLaw": "ENGLAND_WALES",
    "language": "en",
    "party": {
      "legalName": "Your company"
    },
    "counterparty": {
      "legalName": "The other company"
    },
    "terms": {
      "pre-money-valuation": "10000",
      "investment-amount": "10000",
      "share-count": "12",
      "share-price": "10000",
      "board-size": "12"
    },
    "inline": "md"
  }'

What it is and when it is used

A seed investment agreement is used when an early-stage company closes its first priced equity round. The company and the investor agree a pre-money valuation, the investor pays a set amount, and the company issues new preferred shares at the resulting price per share. This differs from a convertible note, where no price is fixed until a later round.

Besides the price, the agreement settles the rights that come with the investor's shares: who is paid first on a sale, what happens in a down round, what say the investor has in governance, what reports it receives and whether it may invest again later. It also deals with founder vesting, transfers of shares and how shareholders sell together on an exit. The main terms are often agreed first in a non-binding term sheet.

Who signs it and in which role

Two parties sign:

• The Company, which issues the new shares and receives the money.
• The Investor, which subscribes and pays for the shares.

The parties fill in the facts of the round: the pre-money valuation, the investment amount, the number of shares, the price per share and the board size (all required); and optionally the dividend rate (8% by default), the qualified financing threshold for pro-rata rights (1,000,000 dollars by default), the lock-up period (12 months by default), a cap on the investor's legal fees reimbursed by the company (25,000 dollars by default), a business description, the court location, the arbitration institution and language, the tag-along trigger percentage and the body that appoints the independent expert for drag-along valuations.

Key clauses

The skill negotiates 13 clauses in three groups: economics, governance, and legal and transfer matters.

Pre-money valuation

A low valuation reflecting early-stage risk (a larger stake for the investor), a market valuation based on comparable seed companies, or a premium valuation reflecting strong traction (less dilution for the founders).

Investment amount and share price

A small round with limited runway, a market-sized round giving about 12 to 18 months of runway, or a larger round giving 18 to 24 months or more at the cost of greater dilution.

Liquidation preference

On a sale or winding up, the investor recovers its investment first and then takes either that amount or its pro-rata share, not both (1x non-participating); recovers its investment and also shares in the rest (1x participating); or recovers twice its investment, again without participation (2x non-participating).

Dividend rights

No preferential dividend, with any dividend shared equally when the board declares one; a non-cumulative preferred dividend paid before ordinary shares when declared; or a cumulative dividend that accrues every year and must be paid before any distribution to ordinary shareholders.

Anti-dilution protection

If the company later issues shares at a lower price, the investor's conversion price may stay unchanged, adjust under a broad-based weighted average formula (which the skill calls the prevailing convention), adjust under a narrow-based formula that is more generous to the investor, or drop to the new lower price (full ratchet).

Board composition

A board controlled entirely by the founders, an observer seat with access to meetings and papers but no vote, or the right to appoint one voting director.

Protective provisions

Investor consent for a minimal set of fundamental changes (altering the preferred share rights, issuing senior or equal-ranking shares, dissolution); for those plus material borrowing, a change of control and material changes to the business; or for a wide list including budgets, key hires, related-party transactions and IP licensing.

Information rights

Annual audited accounts only, quarterly statements and updates plus annual accounts, or monthly reports with key indicators plus quarterly and annual statements.

Pro-rata rights

No contractual right to invest in later rounds, a right limited to qualified financings above the threshold, or a right to take part in every future share issue.

Founder vesting

No additional vesting, a standard four-year schedule with a one-year cliff under which the company can buy back unvested shares at cost, or a shorter three-year schedule with no cliff and full acceleration on a change of control.

Transfer restrictions

A right of first refusal plus board consent to any transfer, a right of first refusal only, or free transfer after a lock-up period.

Drag-along and tag-along

A drag-along at 75% or at 90%, each with the same minority protections (a fair-value floor set by an independent expert at the request of a shareholder who voted against the sale, allocation of the price according to the preference waterfall, and limits on the warranties and liability of dragged holders), plus a tag-along on partial sales; or a tag-along only, with no drag-along.

Governing law and disputes

California law and courts, English law and courts, Spanish law and courts, or arbitration under international rules.

The standard terms add closing conditions, restrictions on the use of the money, the investor's legal fee reimbursement up to the agreed cap, representations and warranties, and an indemnity capped at the investment amount.

What the two sides usually negotiate

The company generally prefers a high valuation, no preferential dividend, no anti-dilution, a founder-only board, minimal vetoes, annual reporting, no pro-rata rights, no additional founder vesting and tight transfer controls. The investor generally prefers the opposite on each point, plus a participating or multiple preference, full ratchet, a board seat and tag-along without drag-along.

When the two sides disagree, Dealroom proposes the balanced positions in the skill: a market valuation and market-sized round, a non-cumulative preferred dividend, broad-based weighted average anti-dilution, an observer seat, the standard set of vetoes, quarterly reporting, pro-rata rights in major rounds, standard four-year founder vesting (outside Spain) and a right of first refusal only. On governing law, the option for the company's own jurisdiction scores as neutral in England and Wales and in Spain; in California it leans slightly to the company.

Two clauses have no neutral option. On liquidation preference, the 1x participating preference is closest to the middle and leans to the investor, while the 1x non-participating preference, which the skill uses as its default, favours the company. On drag-along, the 90% threshold is closest to the middle.

Jurisdictions and languages Dealroom supports for it

Dealroom drafts this agreement under the law of California, of England and Wales and of Spain, in English or Spanish. The Spanish version is titled Pacto de Inversión.

• California: the agreement addresses federal and California securities compliance and includes a jury waiver. In a merger structure, statutory dissenters' rights may apply alongside the contractual drag-along.
• England and Wales: shares are allotted under the Companies Act 2006, statutory pre-emption rights are disapplied by special resolution before the issue, the premium goes to the share premium account and the investor bears stamp duty. Drag and tag rights should also appear in the articles.
• Spain: the capital increase is approved by the general meeting, the statutory pre-emption right is dealt with in that resolution, and the increase is executed in a public deed and registered with the Commercial Registry. Mandatory company law prevails over any conflicting term. Drag and tag rights must also be carried into the articles (estatutos), the standard four-year vesting option is blocked, and free transfer after a lock-up is offered only with a warning that the articles must permit it.

Common mistakes

• Choosing a law that does not match the company. The share issue is governed by the law of the place of incorporation; Dealroom blocks mismatched combinations.
• Drafting a company buyback of unvested shares for a Spanish company. It is not executable; use cross options in the pacto de socios or a capital reduction.
• Promising "the same price per share" to every class on a drag-along. Where several classes exist, the price follows the preference waterfall.
• Waiving contractual pro-rata and assuming nothing remains. Statutory pre-emption rights in England and Wales and in Spain still apply unless disapplied.
• Keeping drag and tag rights only in a private agreement in Spain. A side agreement not reflected in the articles cannot be enforced against the company.
• Relying on market terms without checking current data. The skill dates its market conventions to July 2026.