Structuring of Corporate Venture program is in the agenda of most Brazilian mid- and large cap companies and financial institutions, aiming to be close to startups with the potential to impact their business.
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, including whether the organization’s investment culture accepts (i) making investments in third-party business with minority or only majority equity, and (ii) having marginal or effective influence on the target management, among others.
Under the legal aspect, there are 2 key doubts that economic groups generally have:
1. What are the Legal Formating for the Corporate Venture Vehicle? the options for the corporate formatting of the Corporate Venture vehicle may be, among others:
(i) using the existing operating company or a holding company of the economic group, which will made the investments directly, without setting up of a new and separate company, or
(ii) a special purpose company (SPE), created in the format of a limited partnership company (“Ltda.”) ora privately held corporation (sociedade anonima de capital fechado), or
(iii) an Equity Investment Fund (Fundo de Investimento em Participações – FIP), a Brazilian Securities and Exchange Comission (CVM) regulated fund.
2. Which as the Contractual Structure of the Corporate Venture Investments?
(i) in seed and early stage startups tend to be structured in the form of Convertible Loan Agreement (instead of acquiring equity) or Stock Option Agreement, 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 in the structuring of Corporate Venture programs, suchas intellectual property, labor, tax, technology protection, contingencies in general, among others.
It is fact that Corporate Venture programs bring oxygenation to economic groups, as they colaborate with startups that have the potential to impact their core business. If thought and put into practice properly, they can generate exponential results.