ARGENTINA Law and Practice Contributed by: Manuel Tanoira, Lucía Rivas O’Connor, Luis Merello Bas and Dolores Nazar, TCA Tanoira Cassagne
participate in the company’s future decisions. This is at the investor’s discretion. • Liquidation preference: In the event of liquida - tion, SAFE holders may have a defined prior - ity for repayment. Investors also typically sign a side letter to the SAFE that acknowledges additional rights that will govern from the moment of their investment or from the moment they convert the SAFE, depending on the type of right. • ROFR (right of first refusal): Investors may have the right to purchase shares before they are offered to third parties. • Information rights: Investors often request regular updates on the company’s financials and operations. • Anti-dilution: Protects investors from dilution in future rounds, often through weighted aver - age or full ratchet mechanisms. • Drag-along: In certain cases, minority share - holders may be required to sell their shares if the majority shareholder decides to sell the company. • Director appointments: Investors in later rounds (such as Series A) often have the right to appoint a director to the company’s board. While less common, warrants may occasion - ally be used in Argentina. This instrument gives the holder the right to purchase shares of the company at a predetermined price in the future, offering flexibility for both investors and com - panies. Given the regulatory landscape in Argentina, particularly with currency restrictions, investors may find the need to engage in creative legal structures to ensure efficient investment flows into local companies. For instance, the invest - ment framework agreement and irrevocable
capital contribution agreements are used to adapt the funding structure in light of local legal and economic conditions. 3.4 Documentation Core Documents in Financing Rounds One of the defining features of Argentina’s ven - ture capital ecosystem is the lack of local invest - ment rounds. The main reasons for this include legal uncertainty, excessive bureaucracy and complex regulations, and lengthy administra - tive processes, which are incompatible with the fast-paced nature of start-ups and lack of tax incentives. Due to these factors, most Argentine start-ups seeking seed or pre-seed funding do so through a holding company in the US, United Kingdom, British Virgin Islands or Cayman Islands, which provides legal security and eliminates restric - tions for foreign investors. While a foreign inves - tor entering as a shareholder in Argentina faces regulatory barriers, VC-approved structures facilitate capital inflows and outflows, helping start-ups secure funding more efficiently. Key documents in Argentine financing rounds are typically global and standard in the VC mar - ket. These documents vary depending on the type of round, such as a SAFE or an equity round. The core key documents that comprise a financing round in a growth company include the following. • SAFE: The SAFE agreement, often based on the YCombinator (YC) template, is a popular instrument in early-stage financing rounds. It grants the investor the right to convert their investment into equity at a later round. In Argentina, the SAFE is commonly adapted with a discount and a target date to suit the local regulatory context and provide certainty
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