SWEDEN Law and Practice Contributed by: Corinne Ekman, Mikael Nagy and Joacim Kanstedt, Gernandt & Danielsson Advokatbyrå KB
their shorter time to market and well-defined acquisition pathways; • deep tech and climate tech sectors, while vibrant in terms of early- and mid-stage fund - ing, tend to have longer holding periods and fewer short-term exits, due to their complex R&D cycles and capital intensity.
tion to the underlying portfolio companies (eg, information and/or inspection rights). 2.2 Fund Economics In Sweden, fund initiators, managers and/ or principals (collectively referred to as “Fund Principals” ) typically participate in the economic upside of a venture capital fund through a com - bination of the following mechanisms. • Management fees: Fund principals typically earn management fees, which are a percent - age of the committed capital or assets under management. This fee, which is typically between 1.5–3%, compensates them for the operational and administrative costs of man - aging the fund. • Carried interest: The primary source of upside for fund principals is through carried inter - est. This is usually structured as a percent - age (typically between 20–30%) of the fund’s profits via a European waterfall (whole of fund model). • Fund commitment: Fund principals typically invest their own capital (typically between 2–4%) into the fund, either as direct inves - tors in the fund or indirectly via co-investment vehicles. This serves to align interest with the investors and satisfy expectations of “skin in the game” and enabling them to benefit from the fund’s overall success. • Direct co-investment opportunities: Fund principals may also have the right to partici - pate in direct co-investments alongside the fund in specific portfolio companies, enabling them to share in the potential upside of suc - cessful investments. These mechanisms ensure that fund principals are incentivised to maximise the fund’s perfor - mance, aligning their interests with the inves -
2. Venture Capital Funds 2.1 Fund Structure
In Sweden, venture capital funds typically use limited liability companies ( aktiebolag ). The own - ership of the fund is made up of passive inves - tors, as well as the fund managers (which man - age the fund’s daily operations, including leading investment decisions, formulating the strategy and engaging with the portfolio companies). The investment committee (which is usually com - prised of senior partners and top executives of the fund) is typically responsible for ultimately approving investments and exits in accordance with the fund’s strategy. Typically, investments in a Swedish venture capi - tal fund are made by subscription of preference shares (ie, equity investment). Within such frame - work, the participation is governed by a share - holders’ agreement. It is not unusual that certain funds also allow participation through equity-like loans in order to accommodate varied needs of investors from different jurisdictions. In case a venture capital fund allows participation through debt, the participation is usually governed by a debenture agreement (with substantial similari - ties to that of a shareholders’ agreement). Certain investors may also request to enter into side letters to address specific needs including as a result of a fund being backed by investors demanding certain rights applicable also in rela -
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