ARGENTINA Law and Practice Contributed by: Manuel Tanoira, Lucía Rivas O’Connor, Luis Merello Bas and Dolores Nazar, TCA Tanoira Cassagne
3. Investments in Venture Capital Portfolio Companies 3.1 Due Diligence Due Diligence and Financing Rounds Key areas of focus in due diligence When evaluating start-ups, venture capital inves - tors in Argentina dig deep into legal, financial and operational details. They examine the cap table to confirm ownership aligns with the founding team and past investors. The company’s legal structure gets a detailed check for compliance with local rules, while founders’ vesting agree - ments are reviewed to ensure they’re locked in for the long term. Contracts with employees and contractors are examined for labour law adher - ence, and the equity incentive plan is evaluated to see if it motivates staff effectively. Past financing rounds and agreements reveal the start-up’s capital history, while major commer - cial deals and partnerships clarify on operational strengths and risks. Non-compete clauses and information access agreements post-investment also are examined to limit potential pitfalls. 3.2 Process Timing and Dynamics of Financing Rounds A new financing round for a growth company in Argentina typically spans from three to six months for SAFE deals, although delays can stretch this timeline. Equity rounds, requiring greater efforts to secure funding, often take six to nine months to close, depending on the deal’s scale and the parties involved. Existing investors with convertible securities, new investors, founders and employees all play roles, with the lead investor, often in the Series A round, setting terms that others follow.
Separate legal counsel for the lead investor and the company maintains the separation of inter - ests while the company’s lawyer typically han - dles SAFE holders and institutional investors, aligning founders and staff under one umbrella. 3.3 Investment Structure Types of Instruments in Early-Stage Financings The majority of start-ups in Argentina use standard industry templates from YCombinator (YC) and National Venture Capital Association (NVCA). The YC template for SAFE agreements is commonly used, particularly in the early stag - es of investment, and adapted to the local con - text. Additionally, the NVCA templates for equity financing are also used, with necessary adap - tations to reflect the realities of Latin American markets. Various instruments other than common stock are frequently used in early-stage financings. These instruments often include SAFE and war - rants, depending on the circumstances and the specific needs of the company. SAFE is one of the most common instruments used in early-stage financings. It provides inves - tors with the right to convert their investment into equity at a later financing round, typically with a discount, a target date and certain liquida - tion preferences. • Discount: Investors typically receive a dis - count on the next financing round. • Target date: The SAFE may have a target date, upon which it will convert to equity if certain conditions are met. This feature is often used due to the lack of liquidity in the industry, and to be able to resolve and give the investor the option to incorporate them - selves into the company’s cap table and
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