reps and warranties

Definition

Legal promises in investment agreements where founders swear everything they've said is true and the company isn't hiding skeletons. Breaking these can result in personal liability, making due diligence the most stressful time to discover that intern you hired in 2019 never signed an IP assignment.

Example Usage

The reps and warranties section was 47 pages long, covering everything from 'you actually own your IP' to 'nobody has threatened to sue you.'

Origin

Standard legal terminology from contract law, 'representations and warranties'

Fun Fact

Founders often negotiate survival periods and liability caps for reps and warranties, because three years after an acquisition is a terrible time to discover your startup inadvertently violated GDPR.

Source: Legal and M&A terminology

Related Terms

Intermediate

capital call

The formal demand from a general partner to limited partners to wire their committed funds, usually with 10-30 days notice and an implied "or else" hanging in the air. It's how venture funds move committed money from promised to deployed.

🚀 Startup / VC

Intermediate

pay-back period

The time required for an investment fund to return its original capital to LPs through exits and distributions. It's the VC equivalent of asking 'when do I get my money back?'

🚀 Startup / VC

Intermediate

Vesting

The process by which employees gradually earn their stock options over time, designed to keep people from taking the equity and running. It's a four-year golden handcuff that makes quitting feel like leaving money on the table, even when the money is imaginary.

🚀 Startup / VC

Intermediate

Acqui-Hire

When a company buys another company not for its product but for its employees, which is the corporate equivalent of buying a house just for the kitchen. The product gets quietly killed while the team gets quietly absorbed and quietly regrets everything.

🚀 Startup / VC

Intermediate

fund lifecycle

The typical 10-year lifespan of a venture capital fund from raising money to returning capital to LPs, with investment happening in years 1-5 and exits in years 5-10. It's why your VC keeps asking about your exit timeline.

🚀 Startup / VC

Advanced

participation rights

A clause letting preferred investors double-dip by getting their liquidation preference back AND participating in the remaining proceeds with common shareholders. It's having your cake, eating it too, and taking a slice of everyone else's.

🚀 Startup / VC

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