DOs and DON’Ts in nego­tia­ti­ons with venture capi­tal investors

Start-ups and compa­nies in the growth phase are depen­dent on finan­cing from exter­nal capi­tal provi­ders. Due to the special risk profile, such finan­cing will regu­larly be struc­tu­red as equity — or by means of equity-like finan­cing instru­ments. Despite funda­men­tally diffe­ring inte­rests, the lender and the borrower should have the common goal of being relia­ble “part­ners” and of jointly leading the company to success with concur­rent inte­rests. In prac­tice, howe­ver, it can often be obser­ved that even in the early stages of the finan­cing rela­ti­onship, the success of the company and a prospe­rous coope­ra­tion are often unneces­s­a­rily jeopar­di­zed by inap­pro­priate legal and commer­cial arran­ge­ments and requirements.

At first glance, the inte­rests of inves­tors — whether busi­ness angels, family offices or VC funds — and finan­cing reci­pi­ents (founders/entrepreneurs) are diffe­rent. In order to estab­lish a synchro­niza­tion of diver­ging inte­rests, exten­sive contrac­tual arran­ge­ments are typi­cally made — the most obviously important aspect for estab­li­shing a common deno­mi­na­tor is the investor’s parti­ci­pa­tion in the finan­cial success of the finan­ced company.