Seeking better seed capital terms for NZ startups

Technology law firm Simmonds Stewart has published two new seed investment documents to help New Zealand startups.

"A common complaint heard from New Zealand startups is that the investment documents used by local seed investors are founder unfriendly and painfully complex," the company explains.

The two documents are available in the firm's library of free legal templates.

1. Kiwi keep investment simple security – based on 500 Startups' "keep-it-simple-security" (KISS)

2. Kiwi startups agreement for future equity – based on Y Combinator's "simple agreement for future equity" (SAFE)

The company says the terms of the KiwiKISS and the KiwiSAFE are faithful to the principles of the original US versions, which have received wide acceptance not only in the US but also in Southeast Asia.

However, these documents were designed for use in New Zealand and will be familiar to users of Simmonds Stewart's other free templates in terms of style and simplicity, the company explains.

"In Singapore, where there have been a multitude of seed investments executed in the last 3 years, the Y Combinator SAFE and 500 Startups KISS are commonly adapted for use locally," says Lee Bagshaw, a regular advisor on venture capital financing deals in Southeast Asia.

"The familiarity to local and global investors of the terms set out in these documents creates significant efficiencies on deal execution," Bagshaw says. "Any investment up to USD1million is typically by way of some form of convertible note. As a comparable common law jurisdiction, New Zealand could benefit in the same way if investors and companies are willing to embrace these more practical approaches.

According to Simmonds Stewart, Bagshaw says that New Zealand is significantly out of sync with global venture capital trends.

"Seed investments in this country commonly involve investor friendly documentation that can run to over 50 pages," the company explains. "The restrictive and often onerous terms imposed in these deals would rarely be seen in the US and in other tech hubs until the company was raising a much larger "series A" financing round.

In contrast, seed investments using the KiwiKISS or KiwiSAFE documents would involve a simple 10-page agreement on internationally standard terms, Simmonds Stewart says.

The company says the upside for startups using the KiwiKISS or the KiwiSAFE will be a simple investment document without lots of terms to negotiate or limiting the future options of the company.

"This will allow startups to spend their time and money on growing their businesses.

For investors, a key upside is avoiding the painful arguments about startup valuations that go with the existing equity investment model."