CHILE Law and Practice Contributed by: Francisco Barreda, Barreda Legal Tech
efits aimed at financing private funds, such as CORFO’s credit lines. 2.4 Particularities VC funds in Chile are supported by CORFO through financing lines that follow an equity/ debt ratio of 2:1, 1:1, and 0.5. In general, the funds allocate a portion of the money for sup - porting start-ups in future rounds, and the goal is to gradually liquidate investments in the dif - ferent rounds. Exits are not as common as in other markets. 3. Investments in Venture Capital Portfolio Companies 3.1 Due Diligence In general, due diligence processes are more or less intensive depending on the stage the respective start-up is in. The main areas of focus are valuation, financial evaluation, mar - ket, founding team, technology used, clients, and governance. As for legal due diligence, it typically includes reviewing the corporate structure, key contracts with clients, employment matters of employees and founders, tax compliance, litigation, and potentially regulatory issues affecting the com - pany (eg, financial service providers regulated The round duration generally depends on the number of investors and the stage the company is in. In early-stage investments, multiple inves - tors usually conduct their own due diligence, which, even if simple, takes time and can dis - tract the founders significantly. This process typ - ically lasts between two to five months. In later stages, there is generally a lead investor who by the CMF). 3.2 Process
manages the due diligence process along with other VCs. Although more information is avail - able at this stage, it is typically better organised, so the round generally takes between three to four months. 3.3 Investment Structure In Chile, the most common financing instrument at the early stage is the SAFE (Simple Agree - ment for Future Equity), whose model from YC is generally adapted to Chilean regulation. This facilitates the set-up of structures abroad (mainly Delaware and the Cayman Islands) in preparation for more advanced rounds, through the FLIP. These agreements allow investors to receive shares in a future funding round (a valu - ation cap is established, and potentially a dis - count) and generally do not specify an expiration date or interest associated with them. Next, we have the convertible loan, which is a debt instrument (a money credit transaction) that can convert into equity in future rounds, contain - ing a valuation cap and potentially a discount. This instrument is subject to the stamp tax, with the amount depending on various factors (amount, term, etc). To a lesser extent, capital increases with the issuance of ordinary or pre - ferred shares are used. These instruments gen - erally set rules for information and governance, preferential rights in liquidation, anti-dilution pro - visions, MFN (most favoured nation), etc. 3.4 Documentation In Chile, a start-up financing round in the growth stage typically involves the following key docu - ments: • Term Sheet: A preliminary document that outlines the basic terms and conditions of the investment. While non-binding in most of its
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