Venture capital transactions are distinct from private equity and traditional M&A deals, primarily because investors typically acquire only minority stakes in the target companies. This unique characteristic means special rights need to be implemented to protect the investors' interests, often adding layers of complexity to the legal frameworks employed. Unlike majority acquisitions, venture capital investments require meticulous structuring to ensure that investors can safeguard their stakes while fostering the growth and innovation of startups.
To navigate these complexities, it is essential to adopt standard market principles that facilitate smoother venture capital transactions. These principles help streamline the process, making it more efficient and predictable for all parties involved. By adhering to established norms, investors and startups can better align their expectations and mitigate potential conflicts, thereby enhancing the overall success of the investment.
This publication aims to summarize the 10 key elements of venture capital transactions, providing a comprehensive guide for anyone involved in the startup ecosystem, namely:
- Structure and steps of transactions
- Governance and majorities
- Milestones and pre-money valuation adjustments
- Reverse vesting of the founders
- Stock option pools and plans
- Founders liability towards investors
- Exit provisions and liquidation preference
- SIFIDE provisions
- Roll-over mechanisms
- Intellectual Property
By clarifying these concepts, we hope to make the particulars of venture capital more accessible, enabling entrepreneurs, investors, and advisors to navigate the landscape with greater confidence and understanding.
Concerning the keys to negotiating investments of venture capital funds in startups in Spain, please see 10 keys to venture capital transactions in Spain