An increasing number of Brazilian business groups are structuring (or already operating) Corporate Venture programs to be close to startups with the potential to impact their business.
A common figure in developed markets, such as the USA, England, Germany and China, Corporate Venture has gained traction in Brazil in the last 3 years with the interest/need for companies and financial institutions to invest in new technologies and businesses.
Corporate Venture structures must be planned observing several aspects, such as whether the organization’s investment culture accepts (i) making investments in third-party business with minority or only majority equity, and (ii) marginal or effective influence on the target management, among others.
Under the legal aspect, there are several points of attention to consider, including:
1. Corporate: it is common for economic groups to create a special purpose company (SPE) to concentrate investments in startups via Corporate Venture. The SPE may have the simplest corporate format, such as sole proprietorship limited partnerships, or multi-shareholders limited partnership or privately held corporations (sociedade anonima); and
2. Contractual Formatting of Investments: investments (i) in seed and early stage startups tend to be structured in the form of Convertible Loan Agreement (instead of acquiring equity), because there is a greater risk of contamination contingencies of the target, especially labor and tax, and (ii) in late stage startups, which are already tractioning and with relevant revenue, occur through the direct acquisition of shares, although the option of convertible loan is still possible, as needed/recommended.
In addition to corporate and contracts, there are other key points to pay attention to, such as labor, tax, technology protection, contingencies in general, among others.
What can be verified in practice is that this movement of structuring Corporate Venture programs brings oxygenation to large companies and financial institutions. They start to colaborate with startups that have the potential to impact their core business. If thought and put into practice properly, they can generate exponential results.
