Key Investment Agreement Terms To Protect Founders And Investors In NZ

Raising capital can be a huge moment for your business. It can help you hire sooner, build faster, and compete with bigger players.

But before any money changes hands, you’ll want to make sure your investment agreement (and the other documents in the deal) are set up properly.

An investment agreement isn’t just paperwork. It’s the rulebook for your relationship with your investor: what they’re actually buying, how decisions get made, and what happens if things don’t go to plan.

This guide is general information only (not legal advice). It outlines key terms that commonly matter most for founders and investors in New Zealand, plus practical tips to help you avoid common mistakes.

What Is An Investment Agreement (And Why Does It Matter)?

An investment agreement is a legal contract that records the terms on which an investor provides money (or sometimes other value) to your business.

In NZ, the “investment agreement” concept can show up in a few different ways depending on the deal structure. For example, the investment terms might sit in a:

• Share investment arrangement (the investor buys newly issued shares in your company, often documented through a share subscription process)
• Share sale arrangement (the investor buys existing shares from current shareholders, usually under a sale and purchase agreement)
• Convertible or hybrid investment structure (the investor provides funds now, but it converts into shares later under agreed rules)
• Simple loan (less common for equity-style investors, but sometimes used early on)

Why does this matter? Because without clear, aligned documents, you can end up with:

• misunderstandings about what the investor is entitled to (control, veto rights, information rights)
• disputes about valuation or dilution later
• investors expecting influence in day-to-day operations (when you assumed they’d be “silent”)
• founders stuck with restrictions that make future fundraising harder

Getting the legal foundations right from day one helps protect both sides and keeps everyone focused on growth.

What Should You Decide Before You Start Drafting?

It’s tempting to jump straight into drafting when you’re excited about a deal. But you’ll save a lot of time (and avoid a lot of stress) if you lock in the commercial basics first.

Before you draft the investment documents, you should be able to answer:

• Who is investing? (an individual, a company, a trust, a group)
• What are they investing into? (your company, a specific subsidiary, a special purpose vehicle)
• How much is being invested? and is it paid in one lump sum or in stages (tranches)?
• What is the investor receiving? (ordinary shares, preference shares, options, a future conversion right)
• What is the valuation? or how will it be calculated?
• What’s the “use of funds”? (product build, hiring, marketing, working capital)
• Who controls the business after the investment? (board seats, reserved matters, voting thresholds)

This is also a good time to sanity-check whether your wider company documents are aligned. For example, if you’re a company, your Company Constitution and any existing shareholder arrangements often need to match the investment terms, otherwise you can end up with conflicting rules (and the constitution can override parts of private agreements in practice).

If you’re still deciding whether a company structure is right for investment (or you’re tidying up your structure before a raise), a Company Set Up is often the first building block.

Key Investment Agreement Terms That Protect Everyone

A well-drafted investment agreement is usually a mix of “commercial deal terms” and “legal risk controls”. The point isn’t to make the relationship overly rigid - it’s to set expectations and avoid nasty surprises.

Here are the terms we commonly see as the most important in an NZ investment deal (noting that some of these terms may sit in different documents, such as a share subscription agreement, shareholders agreement, the constitution, or board/shareholder resolutions).

1) The Investment Amount, Price, And Valuation

This sounds obvious, but it’s where many disputes start.

Your investment agreement should clearly state:

• the total amount being invested
• the price per share (if shares are being issued)
• the valuation basis (pre-money vs post-money, if relevant)
• the number and class of shares to be issued
• whether any fees, costs, or deductions apply

If the investment involves issuing new shares, you’ll typically document this with a Share Subscription Agreement (or equivalent subscription terms) so the company’s obligations and the investor’s payment obligations are crystal clear.

2) Conditions Precedent (What Must Happen Before Money Is Paid)

Many investments aren’t “pay today, sign tomorrow”. They’re “sign today, complete once the boxes are ticked”. Those boxes are often called conditions precedent.

Common conditions precedent in NZ investment deals include:

• due diligence being completed (financial, legal, IP, customer contracts)
• board and shareholder approvals being obtained
• updates to your constitution or cap table
• execution of related documents (shareholders agreement, IP assignment, employment agreements)
• evidence that key assets are owned by the company (not informally by a founder)

Getting these conditions right matters because they manage risk. Investors want to know what they’re buying. Founders want clarity on when completion occurs and when the cash is actually committed (including what happens if conditions aren’t met by a long-stop date).

3) Representations And Warranties (And Founder Liability)

Warranties are promises about the state of the business at the time of signing or completion - for example, that the company owns its intellectual property, isn’t being sued, and has complied with key laws.

This is a common “hot spot” for founders, because warranties can create real liability if they’re wrong.

Your investment agreement will often deal with:

• company warranties (promises given by the company)
• founder warranties (personal promises from founders, sometimes required by investors)
• disclosure (a process where founders disclose exceptions to warranties so investors can assess risk)

Tip: If an investor pushes for broad founder warranties, it’s worth negotiating sensible limitations, such as:

• time limits for claims
• financial caps on liability
• knowledge qualifiers (e.g. “so far as the founders are aware”)
• materiality thresholds (so you’re not liable for trivial issues)

This is one of the biggest reasons it’s risky to use a generic template - the “standard” wording may not fit your actual risk profile.

4) Investor Rights: Information, Inspection, And Reporting

Investors usually want visibility over how the business is tracking. Founders usually want to avoid reporting obligations that feel like a second full-time job.

An investment agreement often covers:

• financial reporting frequency (monthly, quarterly, annually)
• budgets and business plans (and whether investor approval is needed)
• access to records (what they can request and how often)
• confidentiality obligations around company information

If you collect customer data or handle personal information, it’s also worth checking your privacy settings are compliant because investors may look closely at this. Having a fit-for-purpose Privacy Policy (and internal data handling practices) can be a practical part of preparing for investment and due diligence.

5) Control Terms: Board Seats, Voting Rights, And Reserved Matters

Not all investors want to run your business - but many will want some level of protection against major decisions being made without them.

This is usually handled through:

• board appointment rights (investor can appoint a director or observer)
• voting thresholds (e.g. special resolutions for major decisions)
• reserved matters (a list of actions requiring investor consent)

Reserved matters often include things like:

• issuing new shares or changing share rights (dilution control)
• taking on significant debt
• selling major assets
• changing the nature of the business
• entering into large or related-party contracts

From a founder perspective, the goal is balance. You want room to operate day-to-day without constantly needing approval, while still giving investors reasonable protection.

6) Equity Protections: Pre-Emptive Rights And Anti-Dilution

Most investors care about what happens in future fundraising rounds.

Common protections include:

• pre-emptive rights (a right to participate in future share issues to maintain their percentage ownership)
• anti-dilution provisions (adjusting rights or share numbers if a future raise happens at a lower valuation)
• pro-rata rights (a practical way of describing participation rights)

These are legitimate protections, but they can affect how attractive your company is to future investors. If your early investor protections are too aggressive, you might find later investors are hesitant or demand a restructure.

7) Founder Commitments: Vesting, Leaver Rules, And Restraints

Investors are often investing as much in the founders as the product. So it’s common for them to want commitments that founders will stick around and keep building.

That might include:

• share vesting (founder shares vest over time or milestones)
• good leaver / bad leaver rules (what happens to a founder’s shares if they leave)
• restraints (limits on competing with the business or poaching staff/customers)

Vesting is often documented in a separate Share Vesting Agreement so the rules are clear and enforceable, rather than implied informally.

Also, if you’re hiring key people as part of the growth plan after investment, investors may expect robust employment documentation. Having a proper Employment Contract can reduce risk around IP ownership, confidentiality, and expectations.

8) Exit Terms: Drag Along, Tag Along, And Sale Process

Even if you’re not planning to sell anytime soon, your investor will likely be thinking about how they eventually get a return.

Your investment agreement (and/or shareholders agreement) may include:

• tag along rights (minority shareholders can join a sale if a majority is selling)
• drag along rights (majority can require minorities to sell, so a buyer can acquire 100%)
• IPO or trade sale mechanics (how a sale is approved and run)
• priority of returns for preference shares (who gets paid first on exit)

These terms are often heavily negotiated because they directly affect control and value on exit.

9) Dispute Resolution And “What If Things Go Wrong?”

No one enters an investment expecting a dispute. But having a process in writing can prevent small issues turning into business-ending fights.

Consider including:

• good faith negotiation timeframes
• mediation requirements
• arbitration (if appropriate for your situation)
• deadlock mechanisms (especially if the shareholding is close to 50/50)

Done properly, this is less about “planning for failure” and more about protecting the company’s momentum.

How Does An Investment Agreement Work With A Shareholders Agreement?

This is a common point of confusion: do you need an investment agreement, a shareholders agreement, or both?

In practice, they usually serve different purposes:

• Investment agreement: sets out the deal for the investment itself (money in, shares issued, conditions, warranties, completion mechanics) - sometimes this is a separate “investment agreement”, and sometimes these terms are captured primarily in a share subscription agreement and related resolutions.
• Shareholders agreement: sets out the ongoing rules between shareholders after the investor comes on board (governance, decision-making, transfers, exits, confidentiality).

For many NZ businesses raising equity investment, it’s common to have a Shareholders Agreement alongside the investment agreement so everyone has clear rules after completion.

It’s also important that these documents (plus your constitution) don’t contradict each other. If they do, you can end up arguing about which document “wins” - which is the last thing you want when you’re meant to be building the business.

Common Mistakes To Avoid When Drafting An Investment Agreement

Most investment disputes don’t happen because people are unreasonable. They happen because the documents didn’t match what each side thought they agreed to.

Here are some common pitfalls we see small businesses run into.

Relying On Generic Templates

Templates don’t know your cap table, your industry risks, your founder dynamics, or your growth plan.

In an investment agreement, “small” wording differences can change:

• whether founders have personal liability for warranties
• whether an investor has veto rights on key decisions
• whether you can raise more capital without approvals
• how exits and valuations are calculated

It’s usually cheaper to draft it properly upfront than to fix a messy agreement when your next round (or a dispute) happens.

Not Defining Roles And Control Clearly

If the investor expects to be hands-on (or expects a board seat), you want that agreed and documented early.

Likewise, if you need the freedom to move fast (as most small businesses do), your reserved matters list should be carefully drafted so it doesn’t slow down day-to-day operations.

Ignoring Future Fundraising

Your first investor deal can shape every raise that follows.

Terms like pre-emptive rights, anti-dilution, and veto rights should be considered with future rounds in mind, not just the current cash injection.

Forgetting About Compliance And Due Diligence Readiness

Investors will often look for basic legal hygiene, such as:

• clear ownership of IP (and assignments from founders/contractors where needed)
• proper contractor and employee arrangements
• consumer law compliance (especially if you sell to the public, online, or by subscription)
• privacy compliance if you collect customer data

In New Zealand, depending on your business model, you may need to consider laws like the Companies Act 1993, Contract and Commercial Law Act 2017, Fair Trading Act 1986, and Privacy Act 2020. The point isn’t to memorise legislation - it’s to make sure your business is operating in a way that won’t scare investors off once they start asking questions.

When Should You Get A Lawyer To Review Your Investment Agreement?

If you’re at the stage of raising investment, you’re making decisions that can affect your control, your upside, and your risk exposure for years.

It’s worth getting legal help when:

• you’re issuing shares for the first time
• the investor wants preference shares, convertible instruments, or special rights
• there are multiple founders and you want clear rules on what happens if someone leaves
• there are significant warranties requested from founders personally
• you expect to raise again in 6–18 months and want “future-proofed” terms

Even if you and the investor have a great relationship, a well-drafted investment agreement protects that relationship by reducing ambiguity.

It also gives you both a clear, professional framework for decision-making - which is especially useful when the business hits pressure points (a cashflow crunch, a pivot, a disagreement about strategy, or an acquisition offer).

Key Takeaways

• An investment agreement sets the rules for how money comes into your business, what the investor receives, and what protections apply to both sides (often across a set of documents, not always a single contract).
• Before drafting, make sure you’ve agreed on the commercial basics like valuation, share class, payment timing, and who controls decisions after the investment.
• Key protective terms often include conditions precedent, warranties and disclosure, reporting and information rights, reserved matters, and exit provisions like drag/tag along rights.
• Founder-focused clauses like vesting and leaver rules can reassure investors while still being fair to founders if they’re drafted carefully.
• Your investment agreement should align with your constitution and any Shareholders Agreement so there aren’t conflicting rules.
• Avoid relying on generic templates - investment terms are highly deal-specific, and small wording differences can create major legal and commercial risk.

If you’d like help drafting or reviewing an investment agreement for your NZ business, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.