Venture Capital Deals Report 2020

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 thus far. 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 this firstever 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.

© Mavericks 2021