CAYMAN ISLANDS Law and Practice Contributed by: Simon Thomas, Richard Spencer, Alexandra Clynes and Sayak Bhattacharya, Campbells
as they delay valuation discussions until later rounds. • Conversion Terms: These notes convert into equity at a predetermined valuation or dis - count in future financing rounds, offering flexi - bility for both investors and companies. Some convertible instruments are linked to perfor - mance hurdles, or other trigger events, and offer interest capitalisation mechanics and other conversion ratchets, thereby enhancing the prospect of a greater upside for investors, particularly in depressed markets. • Advantages: They are simpler to execute than equity rounds and provide a quick way to raise capital without immediate valuation disputes. Redeemable Preference Shares • Redemption Rights: These shares include provisions allowing investors to redeem their shares if certain conditions are not met (eg, failure to achieve an exit event within a speci - fied timeframe). • Flexibility: The terms of redemption can be tailored to suit investor needs, providing an exit mechanism if the company does not meet performance milestones. Warrants • Additional Equity Options: Warrants grant investors the right to purchase additional shares at a predetermined price, often used alongside other financing instruments. • Incentivisation: They can incentivise investors by offering potential upside without immedi - ate equity dilution. SAFEs (Simple Agreements for Future Equity) • Use in Early-Stage Financing: SAFEs are common in early-stage investments as they delay the issuance of equity until later rounds while still taking the benefit of a cash injec -
tion. SAFEs are also typically prepared on standard Y Combinator forms, which makes their use even more attractive particularly for founders seeking to limit negotiation and legal spend in these early stages of growth. • Conversion Terms: The SAFEs typically convert into equity at a predetermined valua - tion or at a discount to the price per share in future financing rounds, offering flexibility for both investors and companies. • Advantages: They are simpler to execute than equity rounds and provide a quick way to raise capital without immediate valuation disputes or dilution for the founders. 3.4 Documentation A typical financing round in a growth company in the Cayman Islands involves core documents such as a term sheet, subscription agreement, shareholders’ agreements, amended M&AA, PPM (if required), board resolutions, legal opinions, and updated statutory registers. The exact documentation may vary depending on the instruments issued (eg, preference shares v convertible notes) and specific investor require - ments. These documents ensure clarity in gov - ernance, compliance with Cayman law, and pro - tection for all parties involved in the transaction. Frequently used templates in Cayman Islands financing rounds include NVCA model docu - ments, adapted for use in the context of Cay - man targets, which streamline transactions while maintaining compliance with local regula - tions and global best practices. Key templates include: • Term Sheet;
• Share Purchase Agreement; • Investors’ Rights Agreement; • Voting Agreement;
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