The low-inte­rest phase conti­nues — at least in Europe — and there is curr­ently no end in sight to this phase in Europe. There is a lot of money in the market for this reason, among others. In other asset clas­ses, it is beco­ming incre­asingly diffi­cult to achieve high returns. For this reason, among others, the asset class “venture capi­tal” is beco­ming incre­asingly attrac­tive for inves­tors — despite the risks. Recent VC fund laun­ches have shown that fund volu­mes are also steadily incre­asing in Germany due to the growing inte­rest in VC invest­ments. On the other hand, this also increa­ses invest­ment and yield pres­sure in the VC sector. For this reason, among others, early-stage invest­ments are also beco­ming more attrac­tive for VC funds that previously tended to focus on later invest­ment phases. Sepa­rate funds are often set up for this purpose.

There has been an impres­sive profes­sio­na­liza­tion among family offices and busi­ness angels. This applies to deal sourcing as well as to the ongo­ing manage­ment of invest­ments. Family offices conti­nue to invest in VC funds. Howe­ver, grea­ter profes­sio­na­liza­tion and growing expe­ri­ence with VC invest­ments have led to family offices incre­asingly making direct invest­ments. Incre­asingly, busi­ness angels are joining forces in various legal forms for deal sourcing and joint indi­vi­dual invest­ments, as well as mana­ging invest­ments through to exit. In this respect, a stron­ger presence is also clearly noti­ceable for other than insti­tu­tio­nal VC inves­tors in the VC sector.

When nego­tia­ting, it is crucial that busi­ness angels bundle and, if neces­sary, also coor­di­nate with family offices. Other­wise, the fund­rai­sing process can be too cumber­some and signi­fi­cantly hinde­red for both the startup and insti­tu­tio­nal VC inves­tors (who tend to invest some­what later than busi­ness angels). From the perspec­tive of VC inves­tors and also the startup, formal pooling agree­ments and proxies are important for the period after the first major round of funding. Here, so-called “hard” pooling agree­ments that go beyond mere pooling of voting rights are beco­ming incre­asingly common. Whether and to what extent this is accep­ta­ble then not infre­quently beco­mes a heavily discus­sed point of nego­tia­tion between busi­ness angels on the one hand and the startup and insti­tu­tio­nal inves­tors on the other.

From the perspec­tive of family offices and inves­tors, hedges in the event that the startup does not deve­lop as expec­ted (in parti­cu­lar liqui­da­tion prefe­ren­ces and dilu­tion protec­tion), as well as the safe­guar­ding of a mini­mum invest­ment margin in the event of an exit, play an important role in early-stage invest­ments. The latter leads to the fact that in some cases a mini­mum sales price for the exit case is agreed quite early on. Only when this is reached or excee­ded is there a co-sale obli­ga­tion on the part of the investors.

Of course, the co-deter­mi­na­tion and veto rights of inves­tors are and always will be a clas­sic topic. For exam­ple, one point of nego­tia­tion is often whether and to what extent inves­tors should have a say in future finan­cing rounds and under what condi­ti­ons they must agree to such a round. Although there are nume­rous design opti­ons here. In the end, the ques­tion always remains as to whether and to what extent any consent and coope­ra­tion obli­ga­ti­ons would actually be enforceable within a reasonable period of time in future finan­cing rounds. In my expe­ri­ence, the value of such regu­la­ti­ons lies more in their “disci­pli­ning” func­tion for smal­ler investors.

Finally — also and espe­ci­ally in the early phase — the vest­ing rules are of parti­cu­lar importance for inves­tors, espe­ci­ally the vest­ing period, the cliff period and the ques­tion of when a so-called good leaver or bad leaver case exists. Inves­tors want to see a clear commit­ment on the part of the foun­ders here. On the other hand, the foun­ders do not want to have to return all their shares after four years. Parti­cu­lar atten­tion should be paid to the vest­ing rules (also with regard to tech­ni­cal proces­sing); other­wise, their imple­men­ta­tion and enforce­ment may cause considera­ble diffi­cul­ties later on.

Inter­na­tio­nally, there have never been so many so-called “unicorn exits” (i.e. exits with valua­tions in the billi­ons) by way of IPOs as in 2018. Howe­ver, Europe’s share of these exits is rather modest. The stock market envi­ron­ment in Germany is still very diffe­rent from that in the USA in parti­cu­lar (despite some efforts by Deut­sche Börse to make impro­ve­ments here, inclu­ding the crea­tion of new stock market segments and venture networks).

In Germany, exits are still mainly trade sales. There have been a large number of these in Germany in recent years, some of them with quite high ratings. On the other hand, grea­ter caution is now noti­ceable on the part of buyers when it comes to exit valua­tions. In addi­tion to some­ti­mes quite exten­sive cata­logs of warran­ties and rela­ted escrow agree­ments, there are ther­e­fore also incre­asingly quite strict reten­tion agree­ments for the foun­ders, accor­ding to which they must initi­ally conti­nue to work for some time (three to four years are not uncom­mon here) before they receive their full share of the exit proceeds. Incre­asingly, there are also exit cases with a very large number of (mostly smal­ler) early inves­tors. A very important task is then their bund­ling as well as the legal and logi­sti­cal hand­ling of such cases, also and espe­ci­ally with regard to the distri­bu­tion of exit proceeds and the corre­spon­ding payment flows.