Okay, this is the big and final one.
We started this project because we believe the Italian ecosystem holds so much more potential than it’s expressing. But to achieve that deals need to close faster, with fair terms that are accessible by everyone.
So we published our standard Term Sheet and ESOP on our website, free for everyone to use. Today, we close the loop with the two documents that govern your relationship with your investors for years: The Investment Agreement and the By-Laws (Long Docs for short!). Let’s get into the last piece of the Investment Documents with this article! 😊
The Long Docs are negotiated deal by deal, so rather the full template we are sharing a summary of the key clauses and terms. Our friends at BonelliErede wrote two guides, one per document, explaining what is in them and why, written for founders rather than for lawyers. Both are on our website, along with a video walking through the mechanics. Enormous thanks to Giulia Bianchi Frangipane and the BonelliErede team, who put a lot of work into this!
In this article, I want to explain why the main clauses exist. The idea is that once you understand what a clause protects against, you either agree with it in thirty seconds or you know exactly which number you want to change.
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First, the process
Before we get to the documents, let’s start from the process.
Once the Term Sheet is signed, we do one long meeting in person with founders, investors and lawyers on both sides. We go through every main topic and every open bracket and we agree the content right there in the room. We explain why we are asking for something and how it usually helps founders too at this stage. The founders push back where they disagree and by the end of that meeting, the negotiation should be done.
Then the lawyers write up what we agreed and we sign. What we absolutely want to avoid is six weeks of tracked changes where everyone comments on phrasing and nobody remembers what was decided. That process is slow, expensive, and it damages the relationship right when you are supposed to start working together.
Why there are two documents
The Investment Agreement is a contract. It binds the people who sign it: the company, the founders, the other quotaholders, any SAFE holders, IFF and any co-investors. It covers the mechanics of the round and the commitments founders make personally.
The By-Laws are your company’s governance charter. They get filed with a notary and they bind the company and anyone who ever holds quotas in it, including people who show up three years from now and never signed anything with us. That is why governance, transfer restrictions, liquidation preference and exit rules live there instead of in the contract. If you were to put them in a contract, they would only bind the signatories, if you put them in the By-laws they bind the world. Pretty smart eh?
The Investment Agreement
The warranties, and why ours are short
If you take a look at our Investment agreement, you’ll immediately notice how short the Warranties section is. For reference: in some VC contracts this section runs for dozens of pages.
We deliberately chose to keep it short, because an early-stage company has almost no history and very few tangible assets to guarantee, so loading founders with pages of warranties about things that barely exist yet is disproportionate and mostly generates legal fees rather than protection.
So what did we leave? It splits in two:
The founders warrant the fundamentals: the company is properly incorporated, solvent, enrolled as an innovative startup or PMI, the cap table is what it says it is, and there are no other shareholder agreements sitting in a drawer.
The company warrants the operational side: no material facts were hidden that would have changed the valuation, everything shown in diligence is true and complete, the business was managed with real diligence, the IP is genuinely owned and unencumbered, the accounts are accurate, and there is no litigation nobody mentioned.
Reading that list again, you’ll notice that our Warranties basically sum up as:” you told us the truth about what you are and what you showed us.”
What founders commit to
There are four main undertakings a founder commits to. The logic behind all of them is that at pre-seed we are investing in you as a person before your company, so these are mostly related to you as a founder!
Non-compete and non-solicitation for 24 months from the later of leaving your role or ceasing to be a quotaholder, within the restricted territories.
No competing business, no equity in competitors, no poaching the team or the clients.
Exclusivity means full-time dedication, with any side activity needing written consent from both the company and IFF.
Stability means no resigning in the first three years. And any IP you create in connection with the company belongs to the company, with your help on filings if needed.
Keep in mind that these clauses protect you from your co-founders as much as it protects us 🙂
Vesting and the Call Option
Building a company is a marathon, which is why founder quotas vest over a standard four-year period from closing. This includes a 12-month cliff, followed by 12 quarterly installments, provided you are still actively working with the company.
If a founder decides to move on, the “call option” comes into play. This simply gives the company first, and then the investors pro-rata, the right to buy back quotas. This right expires on the fourth anniversary of closing, and we’ve built a very clear procedure around it: a call notice must be issued within 60 business days of becoming aware of the departure, you have 30 days to object, any price disputes go straight to an independent expert, and everything else is handled by the Court of Milan.
What’s important here is how your departure is categorized:
The Bad Leaver: In this scenario, you lose everything (both vested and unvested quotas) for a symbolic, nominal value. This sounds harsh, but it is strictly reserved for severe situations: removal or dismissal for just cause, resigning during your stability period without consent, a criminal conviction that materially damages the company, or breaching your non-compete, exclusivity, or stability agreements.
The Good Leaver: This covers absolutely everything else. Whether it’s a mutual termination, health reasons, or constructive dismissal, you keep all of your vested quotas. Only the unvested portion can be bought back, and crucially, it will be at fair market value using standard venture valuation methods with no minority discount.
Just so we’re clear: underperformance and failure to hit agreed milestones explicitly do not make you a bad leaver. If the business plan just doesn’t work out despite your best efforts, you are a good leaver. “Bad leaver” is always about your conduct, never about your results. Hope this gives you some peace of mind because it’s often super confusing for founders.
Future Rounds
The agreement naturally contemplates future fundraising. We all accept that new investors will come to the table wanting the usual standard rights, like senior liquidation preferences, weighted average anti-dilution, governance rights, and so on. To keep things moving smoothly, if IFF and the founders both approve a new round, everyone at the table automatically commits to voting in favor and signing whatever is needed.
The most important takeaway here? This is not a veto. Our approval is not a prerequisite for a new round to happen. New rounds can still be approved under normal governance rules and majorities. Nobody gets to hold your next financing hostage, and that includes us.
The By-Laws: Your Voice vs. Your Upside
We structure things into four classes of quotas: Founder quotas, SAFE quotas (if any converted), Pre-Seed quotas (Pre-Seed 1 for IFF, Pre-Seed 2 for co-investors), and ESOP quotas.
It’s worth highlighting that ESOP quotas carry no voting rights. As we mentioned in the ESOP guide, options are about sharing the economic upside of the company, not giving away a seat at the decision-making table. Your founder quotas are where the actual governance power sits, and we want to keep it that way.
Governance and Partnership
The board will consist of 3 to 5 members, where founders designate 2 or 3, and IFF designates 1 or 2. Ordinary decisions are made by simple majority.
Because we are taking a minority stake, we do need some guardrails to ensure our investment survives. We do this through two lists of “reserved matters.” Some are at the board level (budget, spending above certain thresholds, new subsidiaries) and some are at the quotaholder level (by-law amendments, mergers, liquidation), which require IFF’s favorable vote.
We also have information rights on a fixed cadence: quarterly P&Ls, a monthly management report, and draft financials after year-end. Yes, it is a reporting obligation. But honestly, it’s also the operational discipline that will make your Series A raise dramatically easier.
Liquidation Preference
We use a “1x non-participating” structure. To understand what that means, let’s take the following example:
Imagine IFF invested €500K for Pre-Seed quotas representing 25% of your company.
If you sell the company for €5M, our 25% pro-rata share is €1.25M. Since that’s higher than our original €500K, we simply take our pro-rata share.
If things don’t go as planned and the company sells for €1M, our pro-rata would only be €250K. In this case, we take our original €500K back first.
“Non-participating” means there is no double-dipping. We get one or the other, never both. This structure is widely considered one of the fairest, most standard versions in venture capital, which is why we use it!
Anti-Dilution
We use a “broad-based weighted average” anti-dilution clause, which is the most founder-friendly option available. If you issue new quotas at a price lower than what the Pre-Seed holders paid, our quota count increases automatically based on a formula, without us putting in new money or needing a separate vote.
Unlike a brutal “full ratchet” (which protects the investor’s original price entirely at the founder’s expense), this adjustment is moderate by design. Furthermore, things like ESOP issuances, quota splits, or capital increases required by law do not trigger it. Growing your team’s option pool won’t accidentally penalize you.
Transfers and Exits
Founder quotas are locked up for three years to ensure stability, though there is a carve-out portion you can freely transfer, and a route to get consent if life circumstances suddenly change. We also agree that no quotas can go to a competitor without mutual consent.
When it comes to selling, we follow standard steps:
Right of First Refusal: Existing holders can buy shares before a stranger lands on your cap table.
Tag-Along: If a sale would hand over control of the company, every quotaholder has the right to join the sale on the same terms.
Drag-Along: If there is a bona fide offer for more than half the company at a fair value, IFF and the founders can together force everyone else to sell pro-rata.
Notice that the drag-along requires both of us. We cannot drag you into a sale you do not want to happen!
The “One Euro Right”
I want to explain this one myself because I know how alarming it reads on paper: IFF can require the other quotaholders (or the company) to redeem all of our quotas for a total of one single euro.
Take a deep breath, it is not what it looks like. This is simply a walk-away right for our own fund lifecycle management. It is designed for worst-case scenarios where the company is deadlocked or the quotas have lost substantially all their value. Nobody is making an economic return on a one-euro redemption. What it buys us is an exit from the legal and administrative obligations of being a quotaholder, without triggering a massive valuation fight or forcing a random third party onto your cap table.
Closing Note
That completes the set! The Term Sheet, the ESOP, and now the guides to the Investment Agreement and the By-Laws. All of this is free, lives on our website, and is entirely yours to use.
We already received incredibly generous feedback on the Standard Docs project, and we’d like to thank you all for cheering us on, it’s been a blast.
Thank you for reading, and a big shout out to BonelliErede for helping us put all of this together ❤️
See you soon!
Ire
