PORTUGAL Law and Practice Contributed by: Domingos Cruz, Joana Bugia and Constança Morão, CCA Law Firm
3.3 Investment Structure Early-stage financing in Portugal is typically car - ried out through equity financings or convertible instruments. Funding through equity financing often means that the company will issue the investors pre - ferred shares, which are a type of share that carries certain preferential rights not available to common shareholders. These rights usually include: • non-participating liquidation preferences; • anti-dilution protections ((i) and (ii) further detailed in 3.5. Investor Safeguards ); • pre-emptive and follow-on rights; • restrictions on the transfer of founders’ shares – such as lock-ups and reverse vest - ing mechanisms; • exit mechanisms – such as the tag-along right, the drag-along right and the mandate to sell (further detailed in 6.1. Investor Exit Rights ); • governance rights (further detailed in 3.6. Corporate Governance ); • voting rights and the creation of qualified majorities for certain resolutions of the gen - eral meeting; and • information rights – arising out of the report - ing obligations that the investment fund might have towards the Portuguese regulator, the CMVM, or due to their particularities as government-backed funds or SIFIDE funds. At a very early stage, where the valuation is not yet defined and the company needs urgent fund - ing, the convertible instruments take the lead. Convertible instruments, which usually vary between convertible loan agreements (CLAs) and simple agreements for future equity (SAFEs), are instruments designed to provide a very
• Due Diligence: The extent of information provided by the company and the complexity of the company’s structure, operations and contracts might delay the timeline. • Negotiation of Terms and Conditions: When the company does not consider the market conditions and the rights attached to the financing and the involvement of the legal counsel is delayed, that could also create some delays in the deal. • Compliance with Regulatory Requirements: The need to obtain certifications or to confirm the eligibility criteria usually creates a delay in the timeline. • Existing Versus New Investors: Potential conflicts may arise due to different visions or policies. Usually, the company and its coun - sel deal with the existing investors, and the new anchor investors hire a joint counsel to mitigate the conflicts between the parties and create some efficiency in the negotiations. When the company requires additional efforts to co-ordinate different parties, the timeline is normally extended. • Majority Requirements Versus Consents By the Existing Investors: The default rule in Por - tugal is the simple majority for the approval of business/day-to-day decisions. However, fundamental changes, such as amendments to the articles of association, creation of a new class of shares with special rights and changes impacting rights attached to shares usually require the consent of the existing investors and, if existing investors and new investors are not in synch, all this can create additional layers of complexity and potentially lead to delays in completing the financing round.
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