The Corporate Design of Investments in Startups: A European Experience

European Corporate Governance Institute - Law Working Paper No. 662/2022

European Business Law Review (2022) 23:787-820

40 Pages Posted: 24 Oct 2022 Last revised: 30 Nov 2023

See all articles by Paolo Giudici

Paolo Giudici

Free University of Bozen, Bolzano - School of Economics and Management; European Corporate Governance Institute (ECGI)

Peter Agstner

Free University of Bozen-Bolzano - Faculty of Economics and Management

Antonio Capizzi

"La Sapienza" University of Rome 1

Date Written: December 19, 2022

Abstract

This is the first European study to conduct an extensive empirical research of startup charters. Our aim is to test whether the significant reforms of the law on the Italian società a responsabilità limitata (the GmbH-type limited liability company) were successful in making Italian corporate law more amicable towards startups and venture capital contracting techniques. We explain why, in the Italian context, charters provide significant information on financing deals, and we analyse more than 5000 charters of Italian startups. We find almost 200 charters that reflect the features predicted by the financial contracting theory, albeit with some significant variations in comparison to the US experience. The main one is that convertible preferred shares are not used. We report the large use of (non-convertible) participating preferred shares but also the increasing adoption of preferred shares that are functionally equivalent to US convertible non-participating preferred shares. The absence of convertibility mechanisms also explains the different structure of antidilution clauses in the Italian market. Hybrids are used to provide SAFE- and KISS-like contractual solutions. Co-sale clauses (tag-along and drag-along) are widespread and also highly standardized. US-like vesting schemes are equally observed. Some of the peculiarities we report depend on Italian law idiosyncrasies that are mainly the product of doctrinal constructions. However, corporate practice is pushing the envelope in its efforts to adapt Italian charters to startuppers’ and investors’ needs. From this standpoint, the Italian reforms look, though not completely, successful. Startup law appears to be transforming the European corporate law tradition.

Note:

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Keywords: Empirical legal studies, startups; freedom of contract, venture capital, business angels, outside investors, comparative company law, legal transplants, corporate governance, entrepreneurial finance, closed companies, LLC

JEL Classification: K22, G24

Suggested Citation

Giudici, Paolo and Agstner, Peter and Capizzi, Antonio, The Corporate Design of Investments in Startups: A European Experience (December 19, 2022). European Corporate Governance Institute - Law Working Paper No. 662/2022, European Business Law Review (2022) 23:787-820, Available at SSRN: https://ssrn.com/abstract=4256344 or http://dx.doi.org/10.2139/ssrn.4256344

Paolo Giudici (Contact Author)

Free University of Bozen, Bolzano - School of Economics and Management ( email )

Via Sernesi/Sernesistraße 1
39100 Bozen-Bolzano (BZ)
Italy
+39 0471 013140 (Phone)
+39 0471 013009 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org/members_directory/member.php?member_id=120

Peter Agstner

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

Antonio Capizzi

"La Sapienza" University of Rome 1 ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

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