PORTUGAL Law and Practice Contributed by: Domingos Cruz, Joana Bugia and Constança Morão, CCA Law Firm
3.4 Documentation Portuguese financing rounds are typically invest - ments in equity (as set out in 3.3. Investment Structure ), where the typical key documents are a term sheet, containing the main terms and conditions of the investment, followed by the so-called long-form documents, which are the investment and the shareholders agreements. Financing rounds based on convertible instru - ments are also very common in Portugal, and in these rounds – depending on the amount and on the type of investors – the long-form docu - ments used are SAFEs or CLAs and sharehold - ers agreements. Portugal has not yet reached (and is far from reaching) the level of standardisation of the USA and the UK (since Portugal does not have guide - lines like NVCA), but experienced lawyers and players in the VC area of practice have been increasingly trying to standardise clauses and rights by following international standard prac - tices. 3.5 Investor Safeguards To protect their investment in a downside sce - nario, VC investors in Portugal usually include some clauses that simultaneously protect their investment and prioritise their return of capital, the anti-dilution protection and the liquidation preference. Anti-Dilution Protection Anti-dilution protections are commonly used by VC investors to protect their ownership stake and economic interest in the event of a future down round (an issuance of shares at a lower price per share than the one paid by the relevant VC investor). The broad-based weighted aver - age is the most common anti-dilution protection
straightforward way for investors to invest in the company. CLAs are classified as debt instruments where the principal amount, upon verification of certain triggering events, can be converted into a pre- determined category of shares or reimbursed. CLAs usually accrue interest and have a maturity date. Investors, for as long as they hold the CLA, will not be shareholders and, as a result, will not have the rights attached to shares. However, if the investor is an institutional investor, the infor- mation rights are usually granted. Once the CLA converts into shares, the investor that subscribed for the CLA will have the rights of the class of shares to which the CLA converts – usually the same shares as the investors in an equity financing, if the CLA converts due to an equity financing, or a new category of shares, with the same special rights of the shares of the previous round which shall rank senior to those shares. On the other hand, there are SAFEs, which are instruments introduced by Y Combinator. This instrument is very similar to a CLA as regards its conversion terms and conditions, with the exception of the following: • It shall be considered as other equity instru - ments. • The principal amount shall not be reimbursed. • It shall not accrue interest. In Portugal, in contrast with the UK and the USA, most investors are institutional funds and a maturity date is usually required for the conver - sion of the SAFEs into equity.
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