Venture Capital 2025

INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

• Switzerland (Swiss Private Equity and Corpo - rate Finance Association, or SECA); and • China (China Venture Capital and Private Equity Association, or CVCA). NVCA The NVCA is a trade association that represents the VC industry in the US. It has been publishing model documents for VC financing rounds since 2003, which have become the industry standard for practitioners and are frequently used even in bespoke and sizeable transactions. The set of documentation is regularly updated once a year to reflect evolving market norms. Today, NVCA documents affect key deal terms and market practice well beyond the shores of the jurisdic - tion they have been designed for. BVCA Similarly, the BVCA provides model documents for early stage investments. They illustrate the value standardised documentation for VC trans - actions holds across jurisdictions. The BVCA documents are utilised for post-seed early stage investments in the UK, particularly in Series A funding rounds – with the aim of facilitating the adoption of an industry-standard legal frame - work for such investments. German Standards Setting Institute The German Standards Setting Institute (GESSI) is a joint project of Business Angels Germany e.V. and the German Start-up Association, which equips (registered) start-ups, business angels and investors with expertly crafted templates for their essential legal documentation, includ - ing convertible loans, term sheets and financing- round agreements. SAFE Similarly widespread in adoption – among early stage companies, in particular – is the so-called

model SAFE agreement. SAFE governs a finan - cial instrument in the early stage financing con - text and was originally established in 2013 by renowned incubation hub Y Combinator. The template contemplates equity-like financing in exchange for yet-to-be-issued shares, providing founders with flexibility and control with reduced paperwork. Prior to conversion, the investor’s claim is limited to prospectively issuable prefer - ence shares – the rights to which are defined in the subsequent financing round. Funds carry no coupon or Paid-in-Kind (PIK) interest in the absence of a predefined maturity. Key features in SAFE agreements include a valuation cap, which refers to a predetermined maximum for equity upon conversion and dis - counts investors receive off the price per share paid by new investors in a subsequently priced equity round (with around 20% being the norm). It became the go-to option for US early stage start-ups, owing to its simplicity and focus on future growth potential, and is gradually replac - ing traditional convertible loan structures as the preferred financing option. Drawbacks that come with the use of the SAFE structure include an absence of protection or control rights on the part of investors and, with regards to the founding team, a potential underestimation of their collective dilutive effect if used vis-à-vis multiple investors consecutively. Increasingly exacting foreign direct investment standards Foreign direct investment regulation has become increasingly relevant in the context of cross- border financing rounds in growth companies, holding the potential to delay closing for non- domestic investors. This trend is evident not only in the US but also in EU countries such as Germany.

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