Private capital – updated versions of BVCA documents

The British Private Equity & Venture Capital Association (BVCA) released the updated versions of its standardised Model Documents for early-stage venture capital investments on 26 February 2025, replacing the editions from February 2023. The changes in this latest update are less substantive compared to the previous 2023 revisions, and a summary of the relevant changes is detailed below.

The document suite, designed for Series A funding rounds, includes a Shareholders' Agreement, Subscription Agreement, and Articles of Association. To note, the updated suite of documents now also includes a new Summary of Terms document (i.e. a Term Sheet) for term sheet stage negotiations.

The new Model Documents are available on the BVCA website here.

Shareholders’ Agreement

1. Strategic investors: Optional language has been added to allow the board to limit access to information for strategic investors (i.e. non-financial investors) in certain cases.
2. Indemnification: An optional indemnification clause has been included, which provides for the company to either enter into an indemnification agreement with the directors appointed by significant investors (an investor director) or indemnify them directly. Such indemnification provisions are common practice for deals with a US nexus, and this change is likely reflective of this market practice to assuage US investor concerns.
3. Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT): The existing EIS/VCT undertakings have been redrafted to make them subject to the fiduciary duties of the directors of the company.
4. Other investment opportunities: New clauses clarify that investors can invest in competing companies, without disclosing confidential information, and are not required to present investment opportunities to the company. This provision is in line with market practice and recognises the reality that larger investors, and especially strategic investors/CVCs, will have diversified investment portfolios that may overlap or compete with the investee company's business.
5. Undertakings: The company’s undertakings have been updated to include anti-bribery, anti-money laundering, anti-tax evasion, sanctions, governance, and financial policies and procedures. These undertakings reinforce the existing corresponding AML and anti-bribery and corruption undertakings in the Shareholders' Agreement, and reflect the increasing investor scrutiny on corporate governance and compliance we have been seeing in past years, which is welcomed.

Articles

1. Bad Leaver definition: The definition of “Bad Leaver” has been revised by removing the limb of the definition (originally in square brackets) that considered resignation as a service provider in certain cases as a Bad Leaver event.
2. Liquidation preference: The operation of the waterfall provisions has been clarified to reflect how they were being applied in practice. In addition, the board can, in certain cases, now determine the exchange rate for amounts in different currencies. The language for the liquidation preference for EIS/VCT investors has also been significantly revised, though the practical implications remain largely the same.
3. Anti-dilution: Language has been added to clarify how anti-dilution protection works when the Series A share class has shares with different starting prices (e.g. shares held on conversion of convertible securities). It is now clear that the investor majority may waive the anti-dilution protection in whole or in part, such as waiving it for a funding round involving the conversion of convertible securities at a discount, with shares issued on conversion deemed issued at the non-discounted price for anti-dilution purposes.
4. Sanctions: New provisions have been added to prevent the company from allotting or issuing new securities to a sanctioned person. Restrictions on transferring shares to a sanctioned person have also been included. The board can now require a shareholder to provide information to demonstrate they are not a sanctioned person, and transfer provisions apply if the board, on legal counsel's advice, determines a shareholder is a sanctioned person. These provisions underscore the heightened sensitivity to sanctions in the market for the past years, and reinforce the existing sanctions-related warranties in the Subscription Agreement.
5. Class consent: A new article specifies that the exercise of any right or discretion expressly provided for in the Articles does not constitute a variation or abrogation of the rights of any class of shares and does not require class consent under the Articles. This provision expressly refers to conversion rights and follows the Court of Appeal decision in Ventura Capital GP Ltd v DnaNudge Ltd [2023] that exercising a right in a company’s articles of association to convert preference shares to ordinary shares by notice required preference shareholder consent. For further information on the decision please see our blog post here.
6. Pre-emption rights on new share/securities issuances: Optional language has been added for cases where investors are concerned that a majority of investors could waive pre-emption rights to the effect of excluding the remaining minority investors (who would otherwise benefit from pre-emption rights), while still participating themselves in future securities issuances. This appears to be an attempt to balance majority and minority shareholder rights, but the BVCA did not take a view as to whether this provision is market standard and note that it may complicate future transactions.

Similar optional language has also been included in respect of designating certain transfers as permitted transfers, with the BVCA applying the same rationale detailed above to this inclusion.

Subscription Agreement

1. Completion mechanics: A simplified alternative to the usual completion mechanics has been added, intended for situations where all funds are expected to be received before completion. This alternative offers fewer protections compared to the standard completion mechanics and so may not be suitable for all scenarios. For instance, the more fulsome protections include the board's discretion to exclude investors which fail to pay their respective subscription amounts from the Subscription Agreement and the agreement being deemed varied to that effect.
2. Warranties: The IP, business systems, and data protection warranties have been updated, and warranties related to AI and insolvency have also been included.
3. National Security and Investment Act 2021 (NSIA) investigations: An optional clause has been added to address potential regulatory investigations or actions under the NSIA, requiring the company and the founders (to the extent possible) to assist the investors as needed. For information about the updated guidance on the NSIA published in May 2024 please see our blog post here.