Legal & Compliance
Affirmative Covenant
A contractual obligation requiring a company to take specific actions, such as maintaining insurance, filing taxes, or providing regular financial reports.
An affirmative covenant is a contractual promise to DO something — as opposed to a negative covenant, which restricts actions. In venture capital, affirmative covenants typically require the company to maintain corporate existence, carry adequate insurance, file tax returns, provide quarterly financial statements, maintain books and records, and comply with applicable laws. They establish baseline operational standards that protect investor interests.
In Practice
The Series B investment agreement included affirmative covenants requiring the company to: maintain D&O insurance of at least $5M, provide unaudited quarterly financials within 30 days, deliver audited annual financials within 90 days, and notify investors of any litigation within 5 business days.
Why It Matters
Affirmative covenants ensure companies maintain the basic operational hygiene that protects all stakeholders. Failing to comply can trigger default provisions and erode investor trust, even if the underlying business is performing well.
VC Beast Take
Most affirmative covenants are standard and non-controversial — they simply codify good business practices. The key negotiation points are usually around reporting frequency and the detail level required, not whether the covenants should exist.
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