Venture Capital Deals Report 2022
A 3- to 4-year reversed vesting schedule for
the founders is a market standard for earlystage financing rounds. The vesting schedule
is sometimes combined with a lock-up period
during which the founders are not entitled to
dispose of their shares without the prior consent
of the investor.
Equity Share Option Plans or schemes aimed to
incentivize key employees and other personnel
of the company by issuing them shares are
typically required by the investors. The average
size of the pool for the technology companies is
around 10 %. Both traditional and virtual option
plans can be seen, as well as combinations
or alternatives thereof (such as a “slicing pie”
scheme).
Non-compete clauses restricting the founders
from pursuing competing businesses are
frequently seen in VC deals. Some of the
investors seek to define the scope of the noncompete clauses rather broadly.
A provision containing rules for priority
distribution of the proceeds to the investor
in pre-determined liquidation events (exits).
We have seen a decline in the multiples of
the liquidation preferences required by Czech
investors in the past few years. The standard
is now between 1 – 1.5 × non-participating
liquidation preference.
A provision protecting the investor against
dilution of the value of its investment in the
event of future down-round investment rounds.
Frequently used in the Czech Republic, typically
as a weighted-average anti-dilution provision.
It is not uncommon to see also full-ratchet antidilution provisions, especially in some of the
early-stage investment rounds.
A provision allowing the investor to participate
in future investment rounds, typically up to the
size of the investor’s shareholding interest in the
company. Some Czech investors ask for the right
to subscribe more than just a pro rata part of
future investment rounds.
Milestone (KPI) investments are regularly seen
in pre-seed and seed investment rounds in the
Czech Republic. The investment is typically
divided into 2 to 3 separate payments (tranches)
with the investor’s right not to provide the
tranche in case the milestones are not met by
the company. We have also seen deals in which
the last tranche is structured as a put option
which may be exercised at the investor’s sole
discretion.
Local investors typically ask for a veto right in
respect of certain predetermined decisions
of the company’s General Meeting and/or the
Executive Director (business decisions). The
length of the Reserved Matters list depends
on the experience of individual investors and
their desire to control also (micro-) managerial
decisions of the founders
Monthly reporting in combination with more
in-depth quarterly reports on key performance
indicators are commonly requested by investors
in the Czech Republic.
The tag-along right allowing holders of preferred
shares to sell their shares to the same buyer.
Frequently used in most of the pre-seed and
seed deals in the Czech Republic.
The drag-along right enabling certain
shareholders to require the sale of the whole
company is frequently used, even in earlystage investment rounds. Approval by the
majority of common shares and the majority of
preferred shares (investors) is a market standard.
Sometimes, rather strict drag-along rights in the
hands of the investors only can be seen.
The venture capital market in the Czech Republic has been growing year upon year. Surprisingly, there are no official statistics on VC deals in the Czech Republic. We have analyzed dozens of deals in which the Mavericks law firm represented either the company or one or more of the investors to bring you another annual VC deals report with a unique set of data on the current trends and state of the venture capital industry in the Czech Republic. We believe that this report may be useful for local startup founders and investors who, due to lack of relevant data, struggle with finding the right setting of the terms and conditions for their investments. Let’s hope that venture capital investments in startups will continue to grow significantly, thus supporting entrepreneurship, technological talent and innovation around us.
