Introduction to NVCA Model Legal Documents for Equity Financings

‹ News

Among the many issues and decisions facing founders who are preparing for a priced equity financing round, determining which form of financing documents should be utilized is generally not among them. For over a decade, most venture capital-backed deals are based on the model financing documents provided by the National Venture Capital Association (NVCA), or some derivation thereof. Although every company and investment carries its own unique attributes, and you should always consult your attorney before seeking to raise capital, in this article we provide a high-level introduction to the five primary NVCA financing documents: (1) Stock Purchase Agreement; (2) Amended and Restated Certificate of Incorporation (assuming a Delaware corporation); (3) Investors’ Rights Agreement; (4) Voting Agreement; and (5) Right of First Refusal and Co-Sale Agreement. Please note the following is by no means an exhaustive list of pertinent provisions and provides only a preliminary overview of the substantive agreements, which are complex and nuanced. 

1. Stock Purchase Agreement (SPA): The instrument through which an equity investment is effectuated, and pursuant to which investors provide cash to the company, usually in return for Preferred Stock. The critical terms of the SPA include: (i) the purchase price of the Preferred Stock; (ii) the number of shares of Preferred Stock being issued; (iii) the representations and warranties of the company and investors; and (iv) any covenants, continuing obligations, or closing conditions. 

2. “Charter” or “Certificate of Incorporation”: When a new class of stock is being created, or the number of authorized shares is increased, the company’s Certificate of Incorporation will need to be amended to provide for such a change. The Charter is a publicly filed document that, among other things, sets forth the rights, preferences, and privileges associated with the Preferred Stock. For example, a Charter may include anti-dilution provisions (protecting investors from a future issuance of stock at a lower price per share than at which they purchased), and Preferred Stockholders will often expect what are known as “Protective Provisions” to be incorporated. Protective Provisions require a majority vote of the Preferred Stockholders in order for the company to permissibly carry out certain specified actions, such as authorizing/issuing additional stock or amending the Charter or Bylaws. Collectively, these provisions allow the Preferred Stockholders to effectively secure their position, and provide assurance that their investment will not be diluted without their consent. 

3. Investors’ Rights Agreement (IRA): The IRA usually sets forth the Registration Rights, Information Rights, and Preemptive Rights of the Preferred Stockholders, among other potential covenants. “Registration Rights” are a contractual right to participate in a public offering of the company’s securities, or the right to force the same. “Information Rights” provide the Preferred Stockholders with the privilege to access details related to the financial health of the company. “Preemptive Rights” provided certain investors with a right to purchase shares in a future round to protect their current holdings from dilution.

4. Voting Agreement: This agreement generally provides for: (i) the composition of the board of directors of the company, following the financing round, including the election/removal process; and (ii) Drag-Along Rights. “Drag-Along Rights” provide that upon certain stipulated approvals, all parties entitled to a vote shall vote in favor of a sale of the company, acquiesce to the terms of the sale, and refrain from exercising any “dissenters’ rights.”

5. Right of First Refusal and Co-Sale Agreement: As the name suggests, this instrument usually consists of two primary rights: (i) the “Right of First Refusal,” which provides that stockholders (or some subset thereof) must first offer to sell his or her shares to the company and/or the Preferred Stockholders before the equity can be offered to a third party; and (ii) the “Co-Sale Right,” which is the right to “tag along” and participate in the negotiated terms of another stockholder’s sale of equity on a proportional basis. 

F. Connelly Thieman is an associate in the Pittsburgh office of Reed Smith LLP, a dynamic international law firm dedicated to helping clients move their businesses forward. Conn assists early-stage companies and investors navigating equity financing rounds, and frequently aids start-ups with general corporate counseling matters, including formational and commercialization matters. Conn be contacted at

This publication has been prepared for informational purposes only. The provision and receipt of the information in this publication should not be considered legal advice; does not create a lawyer-client relationship, even if contact is made with the author; and should not be acted on without seeking professional counsel who has been informed of specific facts.