The Law of Funding Rounds and VCs | Jonathan Andersin | Negotiator 82

Summary

Jonathan Andersin of DLA Piper has written a handbook on venture capital investments, and this episode walks through the paperwork of a funding round from the outside in: the term sheet, the investment agreement and — the one that matters most — the shareholders’ agreement, which governs daily life all the way to the exit. The frame is set by one fact: a VC invests other people’s money, which is why it demands protections an angel does not. The numbers explain the rest. In the European Investment Fund’s study of some 2,000 exits, only a fifth returned the capital invested and four per cent returned five times or more, while over half returned essentially nothing. Miettinen supplies a live example of the last category — his own €4,320 loss in Verto Analytics — and Andersin shows where the liquidation preference might still be a lifeboat. Along the way: good and bad leavers, drag and tag along, stacked preferences, and the unresolved question of what happens when a shareholders’ agreement collides with the Companies Act — something that, as far as Andersin knows, no Finnish court has ever tested, because these disputes go to arbitration and stay secret.

Chapters

• 00:00 — Opening: the term sheet and the shareholders’ agreement
• 01:00 — Guest: Jonathan Andersin and a new handbook
• 01:49 — Venture capital always invests in a minority
• 02:18 — Founders, angels and pre-seed rounds
• 03:06 — A professional investor invests other people’s money
• 04:00 — Sami lost his money in Verto Analytics
• 04:19 — The liquidation preference as a possible lifeboat
• 05:14 — IPR as the bankruptcy estate’s most valuable asset
• 05:52 — The European Investment Fund’s study of exits
• 06:42 — Only a fifth returned the capital invested
• 07:40 — Why diversification is hard here
• 08:20 — Lifeline Ventures as Finland’s golden touch
• 08:49 — Value is realised only at exit
• 10:04 — A, B and C rounds and the rising valuation
• 10:56 — Whoever comes in at a higher price gets better rights
• 11:13 — Mobidiag and the founder who left empty-handed
• 12:04 — Good leaver and bad leaver explained
• 13:13 — Vesting and redemption at the subscription price
• 13:52 — Incapacity and death as good leaver events
• 14:14 — Drag along, or the obligation to sell along
• 15:23 — Tag along and the same price for everyone
• 16:04 — The option pool and fully diluted ownership
• 17:06 — Liquidation preferences stacking round by round
• 17:43 — Why minority protections are justified
• 19:13 — Contract practice has settled in recent years
• 19:51 — The term sheet is short but decisive
• 20:14 — The investment agreement and the founders’ warranties
• 20:47 — The shareholders’ agreement is the most important paper
• 21:37 — Due diligence and the duty of care
• 22:47 — The disclosure letter in Finland and the United States
• 24:22 — Unknown risks and indemnity clauses
• 25:08 — The Companies Act versus the shareholders’ agreement
• 27:04 — Mandatory and dispositive provisions
• 27:41 — The board’s duty to act in the company’s interest
• 28:00 — A veto right held outside the board
• 29:35 — Powers of attorney can always be revoked
• 30:00 — A contractual penalty works as a deterrent
• 30:46 — Arbitration keeps the rulings confidential
• 32:14 — Delaware and a specialised judiciary
• 32:25 — The bondholder representative act and the agent’s powers
• 33:45 — A billion-scale year for private capital in Finland
• 34:54 — FiBAN and standardised contract templates
• 35:33 — Transaction costs on seed-stage rounds
• 36:20 — Are American documents used in Finland
• 37:36 — The employee share issue and its tax relief
• 39:38 — Earned-income taxation of options holds them back
• 40:02 — Dilution is a zero-sum game
• 40:54 — Compensation for a non-compete from next year
• 42:25 — A founder should understand the fund’s logic
• 43:00 — The unicorn path demands explosive scaling
• 43:31 — The zebra as an alternative to the unicorn
• 44:29 — Angel investors and gentler terms
• 45:06 — A listed company has no shareholders’ agreement
• 45:32 — Trade sale and listing as forms of exit
• 46:11 — The fund’s life cycle drives the timing of the exit
• 47:00 — Closing words and a book recommendation

Watch

The recording lives on the Neuvottelija channel: Rahoituskierrosten juridiikka ja VC:t | Jonathan Andersin | Neuvottelija 82. A Finnish edition of this episode is published at www.neuvottelija.fi.