FRII Convertible Loan Agreement Template

2021: Presentation of convertible loan contract template

On October 5, 2021, the IIDF announced that it had developed a template for a convertible loan agreement.

The template of the contract, published on the IIDF website, will be able to be used by entrepreneurs as the basis for agreements with investors on the conditions for attracting investments.

The model document developed by the lawyers of the Fund is based on the Law on Convertible Loan adopted in July 2021. The law proposes transparent rules for using the mechanism of this investment instrument in Russia both for venture financing and for classical investment purposes.

As part of this regulation, the startup team is able to attract investments much faster and concentrate on working on the product. The investor, in turn, acquired a guarantee that if the agreed conditions occur, the conversion will occur, and he will receive a stake in the business.

According to various estimates, up to 90% of transactions in the early stages between investors and startups with the introduction of understandable regulation will be concluded according to the model of a convertible loan agreement. The agreement, developed by IIDF and proposed to market participants, is aimed at fixing as clearly as possible the basic conditions of the agreements between the parties and maintaining a balance of interests of both parties. The template contains the most necessary conditions and comments on their application and addition.

The agreement highlights the most important points to be taken into account by the parties in the convertible loan agreement: terms of conversion (main scenarios are considered, for example, such as financial KPIs and a new round of financing); A list of documents that can confirm that conditions have occurred methods and formulas for calculating an investor's share depending on different conversion conditions.

"it is important that those who will work with the conversion - notary, registrar and others - have understandable wording. For this, it is better for the startup and the investor to think out in advance what documents will confirm the fulfillment of the conditions, "said Alexandra Orekhovich, director of legal initiatives at the Internet Initiatives Development Fund (IIDF).

At the same time, regulation does not mean a ban on already concluded contracts and other legal instruments, for example, options, convertible bonds, corporate contracts.

The use of a convertible loan agreement will stimulate the growth of private investment in business projects at the growth stage, so we very much hope for a significant increase in the number and amount of transactions concluded on this model on the Russian market in accordance with the terms of Russian legislation, "said Alexandra Orekhovich.