There are several core terms that are commonly included in a venture capital (VC) investment agreement. These terms may include:





1. Investment amount: The amount of money that the investor is investing in the company.



1. Valuation: The valuation of the company at the time of the investment, which determines the percentage ownership stake that the investor will receive in the company.



1. Information rights: The right of the investor to receive regular financial and operational updates from the company.



1. Voting rights: The right of the investor to vote on matters related to the management and operation of the company.



1. Board representation: The right of the investor to appoint one or more members to the board of directors of the company.



1. Right of first refusal: The right of the investor to have the first opportunity to invest in future rounds of funding for the company.



1. Tag-along rights: The of the investor to sell their shares in the startup company to the same buyer as the majority shareholder in the case of a sale or merger of the company.



1. Drag-along rights: The right of the investor to require other shareholders to vote in favor of a sale or merger of the company.



1. Down-round protection: A right of the investor to acquire shares at a reduced price in case of a down-round, i.e. a later round at a lower price per share.



1. Liquidation preference: The right of the investor to receive a certain amount of money before other shareholders receive any payout in the event that the company is sold or goes public.



1. Redemption rights: The right of the investor to require the company to buy back its shares under certain circumstances.





Investor information rights are the rights of shareholders, including venture capital (VC) investors, to receive regular financial and operational updates from the company in which they have invested. These rights are typically included in the investor agreement or the shareholder agreement between the company and the investors.



Investor information rights may include the right to receive:





• Regular financial statements, including income statements, balance sheets, and cash flow statements



• Updates on the company's financial performance, including revenue and profitability



• Reports on the company's business operations, including information on key metrics, market trends, and strategic plans



• Information on major transactions, such as acquisitions, investments, or divestitures



• Notices of board meetings and other shareholder meetings





The right of first refusal is a provision that gives a shareholder, such as an investor or a venture capital (VC) firm, the right to have the first opportunity to invest in future rounds of funding for the startup company. 



The right of first refusal allows the VC firm to maintain or extend its ownership percentage in the company by investing in future rounds of funding before any other investors are able to do so. This can be especially important for the VC firm if it believes that the company has strong growth potential and wants to maintain a significant ownership stake.



The right of first refusal may be triggered when the company seeks to raise additional capital through the issuance of new shares or the conversion of debt to equity. The investor will typically have a certain period of time to decide whether it wants to exercise its right of first refusal and invest in the company. If the investor declines to exercise its right, the company may then offer the opportunity to other investors.







The tag-along right is a provision that gives minority shareholders, such as venture capital (VC) or other investors, the right to sell their shares in the startup company to the same buyer as the majority shareholder in the event of a sale or merger of the company. 



The tag-along right is designed to protect the minority shareholders and ensure that they are not left out of a sale or merger of the company. It allows the minority shareholders to sell their shares to the same buyer as the majority shareholder, rather than being forced to sell to a different buyer or being left out of the transaction entirely.



The tag-along right is typically triggered when the majority shareholder receives an offer to sell its shares in the company. The minority shareholders have the right to participate in the sale on the same terms as the majority shareholder, provided that they also agree to sell their shares.



The drag-along right is a provision that gives a majority shareholder, such as a venture capital (VC) firm, the right to require the minority shareholders, including other VC firms, to vote in favor of a sale or merger of the startup company. This provision is typically included in the shareholder agreement or the investor agreement between the company and the VC investors.



The drag-along right is designed to allow the majority shareholder to force the sale or merger of the company if it receives an attractive offer, even if the minority shareholders do not agree to the transaction. This can be especially important for the majority shareholder if it believes that the company has reached a point where it is no longer a viable investment and wants to exit its investment.



The drag-along right is typically triggered when the majority shareholder receives an offer to sell its shares in the company. The minority shareholders are required to vote in favor of the sale or merger, and must also sell their shares if the transaction is completed.



Private companies often issue multiple “investment rounds” of preferred stock to help finance their growth. Each subsequent round is usually expected to close at a higher price than the prior one. However, that is not always the case and as recent economic turmoil has driven equity values lower, there is an increased likelihood companies may issue stock at lower prices than previous rounds. This is commonly referred to as a “down-round.”



In order to protect investor interests in the context of a down-round there are two main types of protections (sometimes also called anti-dilution protection): full-ratchet and weighted average.



With a full-ratchet down-round protection the conversion price of the investor's preferred shares is adjusted to the price at which new shares are issued, if this price is lower than the original price of the shares. A full-ratchet provision takes effect regardless of the impact on the ownership percentage of other shareholders. This provides the maximum protection for the investor's ownership stake, but can significantly dilute the ownership of other shareholders.



Weighted average down-round protections come in two flavor - borad and narrow: The broad weighted average method calculates the new share price as an average across all shares and uses the following formula to determine the new conversion price.



New Conversion Price = (Old Share Value + New Share Value) / (Old Shares + New Shares)



Where:





• Old Share Value = number of total startup shares before the down-round x share price of old shares



• New Share Value = number of total startup shares after the down-round x share price of new shares





Example:



Assuming a company has already issued 100,000 shares at a price of €100 conversion price per share in the last round before the down-round and is now issuing 10,000 additional preferred shares at a reduced price of €50 per share during the down-round, Using the formula above, the new conversion price would be (€10M + €5.5M (= (100,000 + 10,000) x €50) / (100,000 + 110,000) = €70.5. Owners of the first issue of preferred shares would now be given the option to convert their shares for €70.5, rather than €100. 





The narrow weighted average method calculates the new share price based on the newly issued shares only using the formula:



New Conversion Price = (Old Shares Issued Value + New Shares Issued Value) / (Old Shares Issued + New Shares Issued)



Where:





• Old Shares Issued Value = number of issued shares before the down-round x share price of old shares



• New Share Value = number of newly issued shares after the down-round x share price of new shares





Example:



Assuming a company has issued 10,000 shares at a price of €100 conversion price per share in the last round before the down-round and is now issuing 10,000 additional preferred shares at a reduced price of €50 per share during the down-round, Using the formula above, the new conversion price would be (€1M + €0.5M) / (10,000 + 10,000) = €75. Owners of the first issue of preferred shares would now be given the option to convert their shares for €75, rather than €100. 





While the weighted average protection is not as strong as the full ratchet protection, it still provides a reasonable amount of protection for the original investor.



A liquidation preference is a provision in an investment agreement that gives the investor the right to receive a certain amount of money before other shareholders receive any payout in the event that the startup company is sold or goes public. 



The liquidation preference is designed to protect the VC firm's investment in the startup company and ensure that it receives a minimum return on its investment. It is typically expressed as a multiple of the VC firm's original investment, such as "1x" or "2x."



For example, if the liquidation preference is "1x" and the investor invested €1 million in the company, it would be entitled to receive at least €1 million before any other shareholders receive any payout in the event of a sale or IPO. If the company is sold for more than $1 million, the investor would receive its $1 million preference, and the remaining proceeds would be distributed to the other shareholders based on their ownership percentage.



Redemption rights are provisions in an investment agreement that give the investor the right to require the startup company to buy back its shares under certain circumstances. 



Redemption rights are designed to provide the investor with an exit strategy for its investment in the startup company. There are two main types of redemption rights: mandatory and optional.



Mandatory redemption rights require the company to buy back the investor's shares at a predetermined price if certain conditions are met, such as the company reaching a certain level of profitability or the investor electing to exit its investment.



Optional redemption rights allow the investor to choose whether to sell its shares back to the company at a predetermined price. The investor may exercise this right if it believes that the company's prospects are not as favorable as it had hoped, or if it simply wants to exit its investment.



For a  standard legal contract set for a startup investment  round you may want to consult the GESSI (German Standard Setting Institute) page.