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Management Rights Letter: Granting Institutional Investors Oversight Access
When startups take money from venture capital funds subject to ERISA or similar regulations, those funds need a special document: the Management Rights Letter (MRL). This short but powerful agreement ensures the investor has sufficient rights to “manage” their investment, helping them comply with legal requirements.
Indemnification Agreement: Personal Protection for Startup Directors and Officers
When startup leaders make tough calls - hiring, spending, pivoting - they expose themselves to personal liability. The Indemnification Agreement serves as a legal shield, protecting directors and officers against lawsuits, claims, and costs incurred while serving the company.
ROFR and Co-Sale Agreement: Managing Share Transfers While Preserving Cap Table Control
In venture-backed startups, control of the cap table is critical. The Right of First Refusal and Co-Sale Agreement (ROFR/Co-Sale) helps founders and investors maintain that control by regulating how shares are transferred - particularly when founders, early employees, or other major holders want to sell.
Voting Agreement: Aligning Shareholder Power in Key Company Decisions
While founders often assume they’ll control their company post-funding, the Voting Agreement tells a more nuanced story. This document outlines how shareholders agree to vote their shares on critical company matters, including board elections and future financing approvals.
FAQs
Open allNo. It usually excludes fraud, bad faith, or gross negligence. Coverage applies only when actions are taken in good faith within the scope of duties.
Founders, directors, executive officers, and sometimes key advisors.
Yes, but selectively. While ROFR and co-sale rights are often more about governance than daily use, they remain an important safety net for investors.
Yes. Founders often negotiate carve-outs for estate planning transfers, gifts, or small private sales.
ROFR gives the company or investors the right to buy shares before outsiders. Co-sale rights let investors “tag along” and sell their shares alongside a selling shareholder.
Yes. They can include sunset provisions or be amended in later financing rounds to reflect shifts in ownership or company maturity.
Not always. Negotiated terms often leave founders with meaningful board representation, though investors usually gain at least one seat and sometimes an independent director.
It works alongside the Investor Rights Agreement, ROFR and Co-Sale Agreement, and SPA to create a complete governance framework.
Founders, major investors, and sometimes key employees sign the Voting Agreement as part of a priced equity round.
Yes. Founders can negotiate reporting frequency, pro rata thresholds, and board seat limits to ensure rights are appropriate for the company’s stage.
Registration rights only come into play if the company goes public. They give investors the right to sell their shares in the IPO or subsequent offerings.
The SPA governs the actual purchase of shares, while the IRA governs post-investment rights like information access, pro rata participation, and registration rights.
Not usually. Most rights are limited to “major investors” who meet certain thresholds, preventing administrative complexity from smaller shareholders.
Yes. Some SPAs allow staged investments or additional closings if investors commit to fund in tranches.
If misstatements are discovered, investors may have indemnification claims, meaning the company (or founders in some cases) could be liable.
Yes, all participating investors sign the SPA, along with the company. It governs the purchase of shares in that financing round.
The term sheet is a non-binding summary of key deal points. The SPA is the binding agreement that formalizes the transaction and contains detailed legal terms.
Seed-stage caps often fall between $3M and $10M, but terms vary widely depending on market conditions, industry, and company traction.
Low caps can create significant dilution when notes or SAFEs convert, especially if the company grows rapidly before a priced round.