This post is the third of a three-part series looking at the current NVCA Series A model legal documents.

The National Venture Capital Association (“NVCA”) has created and maintained a standardized, industry-embraced set of model documents that can be used as a starting point in venture capital (“VC”) financings. These model documents are intended to reduce the time and cost of financings and to free principals from the time consuming process of document review, allowing them to instead focus on the high level issues and trade-offs of the deal at hand. The NVCA model documents can be found here.

Due to the changing dynamics of the industry, state law an other considerations to improve the model documents from their previous updated in 2014, the NVCA General Counsel Advisory Board (the “Advisory Board”) was recently created to update the model legal documents and to provide guidance to the NVCA on policy matters impacting VC and VC-backed companies. Several of the Advisory Board’s significant changes to the aforementioned documents are detailed below and in our other posts.

Changes to the model Investors’ Rights Agreement (“IRA”)

  • Harassment Policy. An optional harassment clause (Section 5.11) was added to the model IRA that obligates the company to adopt and maintain an Anti-Harassment and Anti-Discrimination Policy governing appropriate workplace behavior and prohibiting discrimination and harassment at the company. The NVCA included sample forms of a code of conduct, diversity/inclusion policy, and anti-harassment policy in the new set of model legal documents.
  • Investor Control and Protection.
    • If the company defers its demand registration requirements under the mechanics of Section 2.1(c) of the IRA, revised Section 2.1(d) of the model IRA allows the initiating holders to withdraw their demand during the deferral period and such registration will not be deemed “effected.” This ensures that, until the registration actually happens, it will not be considered “effected” for purposes of the demand registration process.
    • The termination of registration rights provision (Section 2.13) was revised to note that the termination of registration rights due to the availability of Rule 144 exemption applies only after the consummation of the IPO.
    • The model IRA’s confidentiality provision (Section 3.5) was revised to allow investors to disclose confidential information as required by “law, regulation, rule, court order or subpoena,” rather than only permitting disclosure of confidential information “as required by law.”
    • The insurance covenant (Section 5.1) now mandates that a company obtains directors and officers insurance and key person insurance.
    • The employee stock covenant (Section 5.3) now includes language that employee stock agreements cannot be amended in a way inconsistent with the requirements of Section 5.3 without approval of the board of directors, including (optionally) the Series A shareholders designee.
  • Consent to Electronic Notice. A new notice provision was added (Section 6.5(b)) whereby the parties consent to electronic notice pursuant to Section 232 of the Delaware General Corporation Law.
  • Arbitration. The model IRA also adds the option of arbitration under the DRAA (Section 6.11).
  • Acknowledgement. The model IRA deleted the “Acknowledgement” provision (formerly Section 6.13) in which the company acknowledged that investors review many opportunities and acknowledging that investors might invest in competing entities.

Changes to the model Right of First Refusal and Co-Sale Agreement (“ROFR”)

  • Consent to Electronic Notice. A new notice provision was added (Section 6.5(b)) whereby the parties consent to electronic notice pursuant to Section 232 of the Delaware General Corporation Law.
  • Arbitration. The model ROFR also adds the option of arbitration under the DRAA (Section 6.4).