Venture capital: Start-up & Scale up

What we do

Venture capital is a form of financing by venture investors. For start-ups and scale-ups, venture capital can be an interesting way to finance the growth of the company. The possibilities are numerous: from large investment firms to angel investors and various capital-for-equity structures to capital-for-debt.

We guide both investors and companies through investment rounds, whether behind the scenes or in the foreground. Attracting venture capital requires legal expertise in addition to a sound business plan. Investors, in turn, require due diligence and clear agreements. Topics that may arise in venture capital transactions include:

• Due diligence checks
• Shareholders' Agreement
• Financing agreement
• Amendment of Articles of Association/structural changes
• Confidentiality Agreement
• Negotiating with investors

We have the knowledge and expertise to assume diverse roles: from advisory services to dispute resolution. We have an experienced team of lawyers and legal experts in the field of venture capital. Contact us to discuss the possibilities.

Venture capital within Corporate, Mergers and Acquisitions

At its core, an investment round is an acquisition transaction: an investor acquires (an interest in) your company and, with it, control and economic rights. That is why we approach venture capital from our broader Corporate, Mergers and Acquisitions. The same instruments that apply to a merger or acquisition reappear in a capital round: valuation, due diligence, guarantees, governance, and exit. We combine that acquisition experience with the speed and flexibility required by a start-up or scale-up. Whether you are an internationally operating investment fund or the baker around the corner bringing your first angel investor on board, you get a mixed team of lawyers and in-house counsel that oversees both the legal and commercial aspects.

The term sheet: the foundation of the investment

Virtually every investment round begins with a term sheet (also known as a letter of intent). In it, parties set out the main outlines of the transaction: the valuation (pre-money and post-money), the investment amount, the class of shares, liquidation preference, governance agreements, investor veto rights, disclosure obligations, and the conditions for closing. Although a term sheet is usually largely non-binding, it often does contain binding agreements regarding exclusivity and confidentiality. Anyone who accepts binding clauses too early or signs an exclusivity period of months significantly limits their negotiating room. We review the term sheet, identify potential pitfalls, and negotiate the terms that matter to you.

Selection of the investment instrument

Not every round is conducted via the direct issuance of shares. Commonly used instruments include:

• Issuance of (preferred) shares – the investor becomes a direct shareholder, often with their own class of shares.
• Convertible loan – a loan that is converted into shares at a later stage (for example, in the next round), typically at a discount or valuation cap.
• SAFE or agreement for future equity – a popular international instrument used to postpone a valuation discussion to a later date.

Each variant has its own tax, legal, and control implications and must, moreover, operate within Dutch corporate law and the articles of association of the BV. We advise on the instrument that suits the phase of your business.

Valuation, dilution and the cap table

The valuation determines how many shares an investor receives for their investment and, therefore, how much existing shareholders are diluted. With each round, the cap table (the register of shareholders containing all interests, options, and convertible instruments) grows. A well-maintained cap table and a carefully considered option pool prevent surprises in subsequent rounds. We calculate dilution scenarios for founders and ensure that the issuance is implemented legally correctly via a shareholders' resolution, amendment of the articles of association, and a notarial deed of issuance.

Investor rights: liquidation preference, anti-dilution and vesting

Investors almost always negotiate additional protection. The most important mechanisms:

• Liquidation preference – in the event of an exit, the investor receives (part of) their investment back first. In the Netherlands, a 1x non-participating preference is common; a 2x or participating variant works out disadvantageously for founders.
• Anti-dilution – protection against dilution in a future round at a lower valuation (down round). The weighted average method is more balanced than a full ratchet.
• Founder vesting and leaver provisions – founders typically earn their shares over a period of four years with a one-year cliff; whoever leaves earlier surrenders (part of) their shares (good leaver / bad leaver).

We weigh these provisions against each other and maintain the balance between investor protection and the long-term interests of the entrepreneurs.

Control, governance and exit

In addition to economic rights, an investment involves control. Consider the composition of the Executive Board and the Supervisory Board, veto rights and approval rights regarding important decisions, information rights, and provisions concerning a future sale, such as drag-along (obligation to sell co-shares), tag-along (right to sell co-shares), and pre-emptive rights for new issues. You record these agreements in the shareholders' agreement and the articles of association. A good corporate governance prevents deadlocks in the boardroom and aligns with a later exit, whether that involves a strategic acquisition or a private equity or management buy-out process . When structuring governance, also pay attention to employee participation: if there is a Works Council, a right of advice may apply to important investment decisions pursuant to the Works Councils Act.

Due diligence and transaction documentation

Before an investor enters, due diligence takes place: an investigation into the legal, financial, and tax status of the company. On the buyer side, our guidance during due diligence investigations focuses on identifying risks, while on the seller side, it focuses on vendor due diligence and a clean data room. The outcomes translate into warranties, indemnities, and conditions precedent. The final transaction documentation typically includes an investment agreement, a shareholders' agreement, shareholder and board resolutions, amended articles of association, a notarial deed of issuance, and, if necessary, supplementary documents such as a transfer of intellectual property rights.

Frequently asked questions about venture capital

What is the difference between venture capital and private equity?
Venture capital focuses on young, fast-growing companies (start-ups and scale-ups) and typically involves minority stakes in early stages. Private equity usually invests in mature companies and more often acquires a majority stake. Both fall under our Corporate, Mergers and Acquisitions practice.

What is a liquidation preference?
It is an agreement stipulating that, in the event of an exit, the investor receives (a portion of) their investment back first, before the ordinary shareholders. The amount (1x, 2x) and the variant (participating or non-participating) determine how favorable this is for the investor and how disadvantageous it is for the founders.

Do I need a lawyer or a legal expert for an investment round?
That depends on your situation. At MKB Juristen, lawyers and in-house counsel work together in mixed teams, ensuring you always have the right expertise at the table: from drafting and negotiating contracts to potential dispute resolution.