An investment agreement (IA) is the contract that regulates how new shares are created during a capital increase in a Swiss financing round. It governs the investment between investors and existing shareholders — covering undertakings, closing conditions, representations and warranties, and the rights attached to the new (often preferred) shares. In a typical Swiss financing round, the IA is signed alongside an updated Shareholders’ Agreement and triggers the notarised capital increase that makes the round real.
TL;DR
- An investment agreement (IA) governs the creation of shares and the investment between investors and existing shareholders
- It includes representations and warranties as assurances about facts and future conduct
- It often includes liquidation preferences giving investors priority in exit scenarios
- Book a free call with us
What is an investment agreement?
An investment agreement regulates the conditions under which new shares are created during a capital increase in a financing round. In other words, it is the contract that turns the deal terms agreed in the term sheet into binding obligations between the company, the existing shareholders, and the incoming investors.
Undertakings: who commits to what
- Existing shareholders: Commit to issuing new (often preferred) shares and approving the capital increase
- General assembly: An extraordinary meeting is required to approve the transaction
- Proxy: The IA may include voting commitments to ensure execution of the transaction
- Investors: Commit to subscribing to shares (cash or set-off, e.g. setting off an existing convertible loan)
- Company: Ensures board resolutions and governance adjustments post-closing
Closing
The agreement defines when and where closing takes place and which conditions must be fulfilled. This includes a checklist of required actions and documents (e.g. signed agreements, board changes, resignations).
Representations and warranties
These clauses provide assurances about the state of the company and the parties involved.
- Representations: Statements of fact at signing (e.g. ownership of assets)
- Warranties: Promises that these facts remain true over time
If breached, the affected party may seek remedies such as indemnification (cash or shares), often after a cure period.
A company confirms it owns its intellectual property. If this is incorrect, investors may claim compensation for breach of warranty.
Liquidation preference
A liquidation preference ensures investors are paid before common shareholders in exit scenarios. It is implemented through preferred shares and follows a payout waterfall structure. Common structures are 1x non-participating, 2x non-participating, and 1x participating; trigger events include exits, liquidations, mergers or reorganisations, and IPOs.
For a deeper treatment, see our introduction to liquidation preference, the detailed liquidation preference clause guide, and our overview on how liquidation preference shapes exit proceeds. Later financing rounds may introduce new preferred share classes, often following a “last in, first out” logic where newer investors are prioritised in payouts before earlier investors and common shareholders.
FAQs
What is an investment agreement?
An investment agreement (IA) regulates the conditions under which new shares are created during a capital increase in a financing round. It governs the creation of shares and the investment between investors and existing shareholders.
What does an investor commit to in an investment agreement?
Investors commit to subscribing to shares. The subscription can be settled in cash or by set-off (for example, by setting off an existing convertible loan).
What is the difference between representations and warranties?
Representations are statements of fact at signing, such as ownership of assets. Warranties are promises that those facts remain true over time. If breached, the affected party may seek remedies such as indemnification in cash or shares, often after a cure period.
What is a liquidation preference?
A liquidation preference ensures investors are paid before common shareholders in exit scenarios. It is implemented through preferred shares and follows a payout waterfall structure. Common structures include 1x non-participating, 2x non-participating, and 1x participating.
Which events trigger a liquidation preference?
Trigger events include an exit (sale of the company), liquidation (dissolution and asset distribution), a merger or reorganisation, and an IPO (public listing).
How do multiple investor classes interact in a liquidation preference?
Later financing rounds may introduce new preferred share classes. These typically follow a “last in, first out” logic, where newer investors are prioritised in payouts before earlier investors and common shareholders.
How do I get this done?
LEXR drafts and negotiates investment agreements as part of our financing round legal package, from term sheet to closing. Book a free call to discuss your financing round.
- financing round
- investment agreement
- liquidation preference
- representations and warranties
- Swiss startups
