Process & paperwork
Warranties & representations
Also called Reps and warranties
Statements of fact about the company given by the company and sometimes its founders in the investment documents, which give investors a claim if they turn out to be untrue.
In plain English
Warranties are the mechanism by which risk is allocated between people who know the company and people who are about to fund it. The company states that it owns its intellectual property, that its accounts are accurate, that it has no undisclosed litigation, that it complies with data protection law, that the cap table is as presented. If a statement is false and the investor suffers loss, there is a claim.
They serve a second and arguably more important function: disclosure. Founders reviewing a warranty schedule are forced to check whether each statement is true, and the exercise surfaces problems that no amount of questioning would have found — the contractor who never assigned their IP, the customer contract with an unusual termination right, the option granted verbally.
The negotiation is about scope and about who gives them. Company warranties are standard. Personal warranties from founders, backed by their own assets, are much more contentious and are usually limited in amount and in time where they are given at all.
Limitations matter as much as the warranties themselves: a cap on total liability, a time limit for bringing claims, a threshold below which claims cannot be made, and the exclusion of anything fairly disclosed in the disclosure letter.
What it means for your cheque
As an investor you are receiving warranties rather than giving them, which is the comfortable side. The practical value is less in the ability to sue — suing the founders of a failed startup is rarely worthwhile — and more in what the disclosure process reveals before you wire the money.
The moment warranties become your problem is at exit, when a drag-along may require you to give warranties to the acquirer. Ensure your obligations are limited to title to your own shares, that liability is several rather than joint, and that it is capped at your share of the proceeds. Those protections belong in the shareholders' agreement you sign at the start.
Do the arithmetic
What a warranty exercise actually turns up
Real categories of problem that surface when founders work through a warranty schedule properly, all fixable before closing and expensive afterwards.
| IP ownership | a contractor who wrote core code and never signed an assignment |
|---|---|
| Cap table | options promised in offer letters and never granted |
| Employment | contractors who are employees in substance, with back-tax exposure |
| Customer contracts | a change-of-control clause letting the largest customer terminate on a sale |
| Data protection | no lawful basis documented for a significant processing activity |
| Founder history | a restrictive covenant with a previous employer |
Every one of these is routine, fixable in weeks at seed, and capable of reducing the price or killing the deal at acquisition. The warranty schedule is how they get found.
At the table
What to negotiate
- Expect company warranties as standard; treat personal founder warranties as exceptional and always limited.
- Agree a liability cap — commonly the amount invested — and a time limit, often 12 to 24 months.
- Include a de minimis threshold so that trivial claims cannot be brought.
- Ensure anything fairly disclosed in the disclosure letter is excluded from claims. This is the whole point of the disclosure exercise.
- For your own exit exposure: limit your warranties to title, make liability several and cap it at your proceeds.
Around the world
How this differs by market
Representations are generally narrower at seed, with NVCA documents providing a standard set that is rarely heavily negotiated at that stage.
EUUK practice uses a detailed warranty schedule with a disclosure letter, and the negotiation is usually substantial.
APACPractice varies; Singapore follows the English model closely.
Warranties & representations: common questions
Do founders give warranties personally?
What is the point of warranties if nobody sues?
Will I have to give warranties when the company is sold?
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