What is a bad leaver? How do venture debt funds work? What is an anti-dilution clause?
Many times doubts arise about the terms used in the day-to-day running of a start-up or about topics related to financing that may be of interest to us. That is why Metricson has prepared this document with the most common questions.
What is the best way to obtain investors for a project: through a capital increase or a convertible note?
The best option depends on several factors, but both have their advantages. A capital increase involves the issuance of new shares, while a convertible note starts as a loan that is then converted into equity. Ultimately, both forms can lead to the same result: an increase in the company’s capital.
What are the penalties for non-compliance with data protection law?
Penalties for non-compliance with data protection law can be significant. In the last year, around 380 penalties were imposed, totalling up to around EUR 20 million in fines. It is essential to comply with data protection regulations to avoid legal and financial consequences.
Is it possible that startups or early-stage companies can be sanctioned for breaches of data protection law?
Yes, both startups and more established companies have faced sanctions for breaches of data protection law. Sanctions can stem from inadvertent breaches, threats of breaches or complaints filed with the data protection agency.
Do I need to register an international trademark if I want to operate in several countries?
Yes, it is important to protect your trademark in the countries where you plan to operate. The international trademark allows you to extend the protection of your trademark beyond national borders, although you should bear in mind that this process involves additional costs and a strategic analysis of the target markets, as we have already seen in our post about the procedure for extending the registration of international trademarks.
Is it advisable to set up a company in the United States or Dubai to attract foreign investors?
Nowadays, it is not necessary to set up a company outside your home country to attract foreign investors. Many investment transactions involve international investors and are done without the need to relocate the company to another country. It is crucial to assess your specific business needs and local regulations before making a decision.
What is Venture Debt and how does it work?
It is a form of financing commonly used by startups. Unlike traditional venture capital financing, where investors receive shares in the company in exchange for their investment, venture debt involves equity loans that must be repaid with interest.
Venture debt is attractive to startups because it allows them to raise additional funding without diluting the stake of founders and other existing shareholders. This type of financing is particularly useful for companies that have already received venture capital investment and have some commercial traction but are not yet profitable or wish to retain more control over their company.
Venture debt loans typically have variable terms and interest rates, and are often backed by company assets, such as accounts receivable, inventory or intellectual property. Venture debt can be a valuable tool to help start-up companies finance their growth and reach important milestones without significantly diluting share ownership.
Should a shareholders’ agreement be signed privately or notarised?
It is advisable to do it in front of a notary. A shareholders’ agreement can be signed in a document. However, there are clauses in the shareholders’ agreement that, in order to be enforceable against third parties, such as someone who is not a shareholder of the company, a creditor, a register, a future investor, etc.,it is advisable to make it public. Moreover, public deeds are enforceable in some agreements, and enforceable means that I don’t have to prove the date, who signed it, that it exists, or the content of the agreement before a judge, which saves a lot of time and money along the way. It is important to take into account the fundamental aspects of the shareholders’ agreement so that everything is well defined.
What is a bad leaver and a good leaver?
Both terms define how a partner exits the partnership. As we saw in our post on good leaver vs bad leaver, a good leaver is one who fulfils his obligations and may have certain rights to his shares on exit, whereas a bad leaver breaches his obligations and may face penalties, including the forced sale of his shares. What is defined as ‘good’ or ‘bad’ must be set out in the shareholders’ agreement to regulate how a shareholder exits at any given time.
What is a preferential liquidation in a shareholders’ agreement and how does it work?
Preferential liquidation is a clause that ensures that one of the investors receives a preferential return, even if it is to the detriment of the other partners. These are usually the last investors to arrive, who make it a condition to protect their investment.
What is an anti-dilution clause and is it commonly applied?
The anti-dilution clause protects investors from excessive dilution in the value of their shares in subsequent rounds of financing. It is not standard, but is negotiated between the parties involved. Anti-dilution can be a valuable tool for investors, but it can affect the capital structure and motivation of the founders.
These questions and answers address various aspects of finance, entrepreneurship and legal protection in the business world. It is important to understand these concepts in order to make informed decisions and mitigate risks in the development and growth of a company.
Do you have any questions that have not been answered in this document? Don’t hesitate to write to us at contacto@metricson.com. We look forward to answering them!