Venture Capital 2025

Definitive global law guides offering comparative analysis from top-ranked lawyers

CHAMBERS GLOBAL PRACTICE GUIDES

Definitive global law guides offering comparative analysis from top-ranked lawyers

Contributing Editor Carsten Berrar Sullivan & Cromwell LLP

Global Practice Guides

Venture Capital

Contributing Editor Carsten Berrar Sullivan & Cromwell LLP

2025

Chambers Global Practice Guides For more than 20 years, Chambers Global Guides have ranked lawyers and law firms across the world. Chambers now offer clients a new series of Global Practice Guides, which contain practical guidance on doing legal business in key jurisdictions. We use our knowledge of the world’s best lawyers to select leading law firms in each jurisdiction to write the ‘Law & Practice’ sections. In addition, the ‘Trends & Developments’ sections analyse trends and developments in local legal markets. Disclaimer: The information in this guide is provided for general reference only, not as specific legal advice. Views expressed by the authors are not necessarily the views of the law firms in which they practise. For specific legal advice, a lawyer should be consulted. Content Management Director Claire Oxborrow Content Manager Jonathan Mendelowitz Senior Content Reviewers Sally McGonigal, Ethne Withers, Deborah Sinclair and Stephen Dinkeldein Content Reviewers Vivienne Button, Lawrence Garrett, Sean Marshall, Marianne Page, Heather Palomino and Adrian Ciechacki Content Coordination Manager Nancy Laidler Senior Content Coordinators Carla Cagnina and Delicia Tasinda Content Coordinator Hannah Leinmüller Head of Production Jasper John Production Coordinator Genevieve Sibayan

Published by Chambers and Partners 165 Fleet Street London EC4A 2AE Tel +44 20 7606 8844 Fax +44 20 7831 5662 Web www.chambers.com

Contents

INTRODUCTION Contributed by Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP p.5

FRANCE Law and Practice p.187

Contributed by Gide Loyrette Nouel Trends and Developments p.205 Contributed by Sullivan & Cromwell LLP GERMANY Law and Practice p.210 Contributed by Sullivan & Cromwell LLP Trends and Developments p.234 Contributed by Noerr INDIA Law and Practice p.242 Contributed by JSA Advocates and Solicitors Trends and Developments p.256 Contributed by JSA Advocates and Solicitors

ARGENTINA Law and Practice p.17 Contributed by TCA Tanoira Cassagne Trends and Developments p.34 Contributed by TCA Tanoira Cassagne BRAZIL Law and Practice p.40 Contributed by FM/Derraik Trends and Developments p.58 Contributed by FM/Derraik CAYMAN ISLANDS Law and Practice p.64 Contributed by Campbells Trends and Developments p.84 Contributed by Campbells

INDONESIA Law and Practice p.262 Contributed by KARNA Trends and Developments p.275 Contributed by KARNA ITALY Law and Practice p.283 Contributed by Gianni & Origoni Trends and Developments p.300 Contributed by Gianni & Origoni JAPAN Law and Practice p.307 Contributed by southgate Trends and Developments p.321 Contributed by TMI Associates MALTA Law and Practice p.333 Contributed by GTG Legal Trends and Developments p.354 Contributed by GTG Legal

CHILE Law and Practice p.91

Contributed by Barreda Legal Tech Trends and Developments p.102 Contributed by Barreda Legal Tech

CHINA Law and Practice p.106

Contributed by Zhong Lun Law Firm Trends and Developments p.132 Contributed by Zhong Lun Law Firm

DENMARK Law and Practice p.142

Contributed by Moalem Weitemeyer Trends and Developments p.156 Contributed by Moalem Weitemeyer

EGYPT Law and Practice p.165 Contributed by Zaki Hashem, Attorneys at Law

Trends and Developments p.180 Contributed by Tahoun Law Firm

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Contents

MEXICO Law and Practice p.362 Contributed by Ritch Mueller Trends and Developments p.371 Contributed by Ritch Mueller NETHERLANDS Law and Practice p.377 Contributed by Stibbe Trends and Developments p.397 Contributed by Stibbe NORWAY Law and Practice p.405 Contributed by Thommessen Trends and Developments p.419 Contributed by Thommessen POLAND Law and Practice p.429 Contributed by Kondracki Celej Trends and Developments p.445 Contributed by Kondracki Celej PORTUGAL Law and Practice p.452 Contributed by CCA Law Firm Trends and Developments p.466 Contributed by CCA Law Firm

SWEDEN Law and Practice p.513 Contributed by Gernandt & Danielsson Advokatbyrå KB Trends and Developments p.533 Contributed by Gernandt & Danielsson Advokatbyrå KB

SWITZERLAND Law and Practice p.541

Contributed by Walder Wyss Ltd Trends and Developments p.556 Contributed by Kellerhals Carrard

TAIWAN Law and Practice p.564 Contributed by Lee and Li, Attorneys-at-Law Trends and Developments p.578 Contributed by Lee and Li, Attorneys-at-Law UK Law and Practice p.583 Contributed by Herbert Smith Freehills LLP Trends and Developments p.608 Contributed by Herbert Smith Freehills LLP USA Law and Practice p.617 Contributed by Cravath, Swaine & Moore LLP Trends and Developments p.641 Contributed by Gibbons P.C.

SINGAPORE Law and Practice p.470 Contributed by Gunderson Dettmer Singapore LLP Trends and Developments p.491 Contributed by Gunderson Dettmer Singapore LLP

SOUTH KOREA Law and Practice p.500 Contributed by Bae, Kim & Lee LLC

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INTRODUCTION

Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

Sullivan & Cromwell LLP provides the highest quality legal advice and representation to clients worldwide. Sullivan & Cromwell’s (S&C) record of success and excellent client service have set it apart for more than 140 years and made the firm a model for the modern practice of law. To - day, S&C is a leader in each of its core practice areas and in each of its geographic markets. Its more than 900 lawyers conduct a seamless,

global practice through a network of 13 offices worldwide. Its capital markets and pre-eminent M&A practices are deeply intertwined with the development of growth companies and their investment structures. As such, S&C regularly represents venture capital investors and growth companies alike, particularly in later-stage and more sizeable transactions.

Contributing Editors

Carsten Berrar is a member of Sullivan & Cromwell’s management committee, managing partner of the firm’s Frankfurt office, and co-head of its global capital markets group.

Florian Späth is a senior associate in Sullivan & Cromwell’s Frankfurt office. He has extensive experience in private and public M&A transactions alike and focuses

As one of Germany’s leading lawyers both for M&A and capital markets, he has advised countless start-ups and rapidly scaling companies in connection with significant corporate transactions such as financing rounds, M&A events and IPOs. His practice includes advising financial and venture capitalist investors in this context. Carsten has been recognised as German “Dealmaker of the Year” and he is ranked Band 1 by Chambers and Partners for German Corporate/M&A and as a “Star Individual” for German Capital Markets: Equity.

on matters involving private equity investors and financial sponsors. In 2021/2022, Florian joined Deutsche Boerse Group, a leading European provider of financial markets infrastructure, where he headed the group‘s legal M&A and venture capital (VC) activities. In this capacity, he co-ordinated and provided counsel on Deutsche Boerse‘s M&A and VC projects, strategic partnerships and innovation initiatives.

Heiko Blaut is an associate in Sullivan & Cromwell’s Frankfurt office. He is a member of the firm’s general practice group, is admitted to the Bar of Frankfurt am Main, and is fluent in English in addition to German.

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

Sullivan & Cromwell LLP Neue Mainzer Straße 52 60311 Frankfurt Germany

Tel: +49 69 4262 5200 Fax: +49 69 4272 5210 Email: berrarc@sullcrom.com Web: www.sullcrom.com

Global Overview 2025 After the record year of 2021, the global venture capital (VC) industry and the ecosystem encom - passing growth companies have been subjected to profound transformations, marked by shifts in key metrics such as elevated discount rates impacting company valuations, a decline in suc - cessful exits, and an uptick in investor-friendly deal terms coupled with a surge in bridge financ - ing arrangements. In 2024, most of these chal - lenges persisted as holdovers, with significant elections in a number of major jurisdictions and geopolitical tensions keeping uncertainty at ele - vated levels throughout much of the year. VC investors continued to be selective with their investments, focusing primarily on more mature ventures and companies with clear paths to prof - itability. Overall, however, the global VC indus - try saw a modest year-on-year (YoY) rebound in 2024. The VC industry and its portfolio companies have evolved to become a shaping force in and for the global economy. Total VC investment vol - ume in 2024 amounted to USD368.3 billion on a worldwide basis, marking a moderate gain from the previous figure of USD345.7 billion (in 2023) and a slight recovery from 2023’s five-year low. A total of 35,684 VC-related transactions affecting growth companies globally – including financing

rounds, M&A deals, and IPOs – amounted to a further 5.6% decline from the 37,809 transac - tions recorded in 2023. Early stage financing continues to dominate in terms of absolute transaction figures, account - ing for 69% of all deals. On the other end of the life cycle, total exit value came down even fur - ther to USD318.5 billion compared to USD335.1 billion of the preceding year, perpetuating an environment where liquidity events are rare. Median deal sizes across Series B, C, and D+ rounds rose substantially in both the Ameri- cas and Europe compared to 2023, with D+ financings rising the most from USD60 million to USD100 million in the Americas and from USD59.4 million to USD80 million in Europe. Unicorn VC deal flow likewise appreciated sig - nificantly to USD119.8 billion in 2024, up from USD84.5 billion in 2023 – with a total of 1,249 active start-up companies now valued at more than USD1 billion globally. In terms of geographical distribution, the USD204.3 billion deployed in North America again led the way, followed by Asia (USD64.7 billion) and Europe (USD63.8 billion) which saw opposite trendlines in terms of YoY develop - ments (deceleration in Asia; pick up of activity

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

in Europe). In terms of micro-geographies, the California Bay Area takes the US’s lead, with USD52.1 billion invested in VC-backed compa - nies in 2024. The most prominent and largest California Bay Area deals all went to ventures engaged in AI (Databricks, OpenAI, xAI, Way - mo and Anthropic). In Europe, out of the conti - nent’s total of USD63.8 billion invested, the UK (USD19.4 billion), France (USD8.8 billion) and Germany (USD8.5 billion) took the top spots. Among the most sizeable European transactions were Wayve (USD1 billion), a venture engaged in the development of a self-learning system for autonomous driving, and British IT infrastructure provider GreenScale (USD1.3 billion). The most substantial funding round in Asia was secured in Q4 2024 by the Chinese electric vehi - cle company AVATR, raising USD1.5 billion in a Series C round. Chinese companies also domi - nated the next largest funding rounds in Asia, with clean energy provider CNNP Rich Energy and electric vehicle joint venture IM Motors at the forefront, each securing USD1.1 billion. Indi - an e-commerce company Flipkart completes the Asian top fundings with USD1 billion. Key trends AI gaining global momentum In terms of industries, artificial intelligence (AI) globally attracted the most sizeable share of VC investment volume: AI start-ups raised over USD100 billion, accounting for around 29% of all venture funding. The largest deals of 2024 all evolved around renowned AI model and infra - structure players. In the lead, Databricks raised USD10 billion in a Series J round, followed by CoreWeave (USD8.6 billion), OpenAI (USD6.6 billion) and xAI (USD6 billion in two rounds). Out of the 16 investment rounds exceeding USD1 billion in 2024, nine of those were invest -

ments into AI companies, representing 80% of such rounds in terms of value. Rebound in valuation growth As the interest rate environment softened fur- ther, valuation levels for start-ups cautiously set out on a path towards recovery in 2024 and are expected to rise further in 2025. Amid challenging geopolitics, macroeconomic uncertainties, and idiosyncratic regional head - winds, the valuations of growth companies have declined since 2021. This trend is reflected both in financing round valuations and the exit value for liquidity events. To illustrate the point, the number of valuation step-ups (increase in a company’s pre-money valuation between two consecutive financing rounds) fell to a ten-year low globally in 2023. That said, in the current cycle of the industry downturn, many assess that valuations then had bottomed out. The global exit value for liquidity events of growth companies (such as M&A trade sales or IPOs) amounted to USD318.5 billion in 2024, a loss compared to the total volume of USD335.1 bil - lion in 2023 and still a long shot from the USD1.5 trillion deployed in 2021. Increased valuations could be observed in both the US (USD149.2 billion in 2024 vs USD120 billion in 2023) and Europe (USD68.1 billion in 2024 vs USD46 bil - lion in 2023), while levels in Asia hit a low point (USD93.2 billion in 2024 vs USD155.8 billion in 2023). In 2024, around 30% of all financing rounds in the US market saw a flat or reduced pre-money valuation relative to the start-up’s last round. In Europe, by contrast, a mild decrease of valuation haircuts (19% in 2023 vs 18.1% in 2024) gener - ally could be regarded as an encouraging sign of a recovery in its early innings which, despite its

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

fragility, may accelerate. The median exit value in Europe in 2024 ended 35.1% higher, driven by increased investor appetite for buyout transac - tions. Fundraising headwinds In 2024, fundraising challenges were still evi - dent across the global marketplace. Globally, USD169.7 billion was raised, less than 80% of the USD213.8 billion provided by limited part - ners (LPs) in the preceding year. In terms of geographical distribution, USD76.1 billion in the US led the way (USD97.5 billion in 2023), fol - lowed by USD66 billion provided to Asian VC funds (USD86.7 billion in 2023) and with Europe continuously lagging behind (USD22.5 billion in 2024, virtually flat from 2023 levels). Besides the reduction in distributions from vin - tage funds, the further decrease can be attrib - uted to several other factors, including LP with - drawals prompted by a perceived shortage of liquidity events, a reallocation of assets to less volatile classes, attractive public market condi - tions and a resurgence of crypto, as well as a general hesitation among VCs to inject addi - tional capital into companies facing declining valuation levels. Fundraising opportunities were increasingly con - centrated among sizeable funds with prominent reputations and typically exceeding USD1 billion in targeted fund size, underscoring pre-existing market inclinations towards a concentration of capital allocation. While the total volume of capital raised in the US in 2024 exceeded pre- pandemic levels, fund counts in the US were at decade lows, at merely 31.3% of the number of funds present in 2022 and progressively con - centrated among a handful of established firms. Against the backdrop of market fundraising highs in 2021 and 2022, however, total available

“dry powder” in the VC industry reached new global record levels standing at USD307.8 billion of deployable capital in 2024. Shifting the focus towards the Asia-Pacific region, China still finds itself navigating through macroeconomic headwinds against a backdrop of economic challenges. Notably, VC transac - tions involving Chinese start-ups witnessed a further decline, plummeting from USD63.7 bil - lion in 2023 to USD38 billion in 2024. Sequoia Capital, which has invested in China since 2005, recently initiated the separation of its Chinese operation. Amid China’s economic downturn, international investors seeking opportunities in Asia have directed their attention to other countries. With USD11 billion deployed in 2024, India contrib - uted a significant 27% of the region’s venture funding representing a 40% growth trajectory YoY. In Japan, overall VC deal value in 2024 exceeded the total for 2023, primarily driven by significant funding rounds. Moreover, the market more broadly seemed to evolve as US-based Andreessen Horowitz announced plans to open an office in Japan. Paradigm shift: growth vs profitability The sustainability of a start-up’s business model, its margins, cash flow conversion, adaptable and recurring revenues as well as a clear-cut pathway to profitability have become a (re-)discovered focus area for venture capitalists and the broad - er community. The intensified pressure recently manifested itself in cost-cutting measures, a sig - nificant wave of tech lay-offs and declarations that the “war for talent” is over. At the same time, premiums on growth (as opposed to efficiency) continue to be particularly pronounced in sec - tors such as next generation software, biotech and AI – indicating a bifurcated market when it

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

comes to terms growth companies can demand from investors. Fewer exits, lackluster distributions Growth companies continue to face significant challenges with their exit strategies, placing substantial strain on sales processes for busi - nesses. Globally, 2024 saw a total of 8,397 M&A exits (compared to 8,529 in 2023) and 355 IPOs (compared to 444 in 2023). The European market continued to suffer, with 3,472 M&A exits in 2024 (substantially flat from 2023 levels) and 42 IPOs (down from 52 in 2023), while the US likewise felt the impact with 3,055 M&A exits in 2024 vs 3,167 in 2023 and 71 IPOs (up from 65 in 2023). On average, from the time of first funding to IPO, it took VC backed companies that went public in 2024 two years longer than in 2022 – a median of 7.5 years. In light of the quadrupling of active venture/ growth investors during the past decade as well as the massive decline in VC distributions in 2022 and 2023, which has not been seen at this level since the global financial crisis, distribu - tions remained significantly below the ten-year average in 2024 but indicate a slight increase for 2025. Alternative financing structures Overall, declining valuations and rocky exit path - ways have prompted demand for alternative transaction structures and financing solutions, which have provided a counterpoint to turbulent markets. At the same time, venture debt corre - lates with overall funding conditions, as equity funding tends to constitute a growth company’s primary repayment source. Non-dilutive measures With VC backing becoming both scarcer and more costly, start-ups are eyeing non-dilutive

financing options as a viable alternative. In 2023, non-dilutive funding for European start- ups increased by 50% compared with the previ - ous year. Unlike venture debt, which may include equity warrants, non-dilutive financing options include revenue-based financing and term loans. While most growth companies continue to prefer external equity financing in order to drive rapid growth, current market conditions have spurred a search for tailored alternative structures. Bridge rounds Venture capitalists have increasingly turned to bridge rounds (typically led by, or confined to, existing investors) in order to support their port - folio companies rather than following through with new investment rounds with terms deemed insufficiently attractive. The tendency was par - ticularly discernible among late-stage start-ups, where valuation levels had decreased most sig - nificantly. The surge in bridge rounds among early stage start-ups follows an initial period of more favourable capital raising conditions com - pared to late-stage companies. Bridge rounds were oftentimes combined with a structured ele - ment to partially provide liquidity for secondary shares. With growth companies running low on cash, a need to raise funds in a compressed timeframe contributed to existing market pressures. Shift - ing dynamics have led to an altered transactional practice not seen in nearly a decade: venture firms’ enhanced negotiation leverage has per - mitted more investor-friendly terms, including more sizeable equity stakes and increased or cumulative dividend rights (guaranteed returns such as compounding interests as part of the liquidation preference owed to shareholders, irrespective of the company’s financial perfor - Ramifications of trends in deal terms Deal terms reflect a shifting market

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

mance). Cumulative dividends were present in 4.7% of all US VC deals with dividends in Q4 2021 and, notably, surged to 23.4% by Q1 2024. In the realm of anti-dilution provisions, only around 2% of transactions are provided with full anti-dilution ratchets to enhance investor protection during down rounds. Most transac - tions with anti-dilution protection (approximately 80%) used weighted average ratchets. In purchase or subscription agreements (other than stock purchase agreements in the US), a tangible tendency for founders to stand behind representations and warranties was discernible. This signals a shift by investors towards risk mitigation and a focus on documented due dili - gence, reflecting, overall, a more prudent invest - ment approach. Moreover, the allocation of board observer seats to investors’ representatives has increased. This trend mirrors investors’ aspirations for increased appetite for engagement in their portfolio com - panies’ governance and business aspects. Consent rights for the benefit of investors have decreased significantly. Compared to 2023, where in 42% of European convertible financ - ings investors managed to secure consent rights to certain matters, in 2024 only 15% of those convertible financings included consent rights for investors. This marked a shift back to more company-friendly terms, where convertible investors typically do not have consent rights on their convertible investment given their non- equity shareholder status at the time of invest- ment. Despite this, and for reasons similar to the shift in pre-emption rights, convertible investors continued to seek information rights in 49% of convertible financings, marking a 26% increase from 2023.

Liquidation preferences have long been nearly ubiquitous in many jurisdictions, especially in early stage financings. Participating liquidation preferences grant investors the right to receive their originally invested amount in the event of a sale or liquidation and, on top of that, share of any remaining proceeds with holders of com - mon stock on a pro rata basis (“double dip”). A non-participating 1x liquidation preference with a conversion right for the investor typically constitutes the default. Despite shifting econom - ics, there has not been widespread adoption of increasing preference multiples to more than 1x (outside of distress scenarios) while region - al practices seem to vary slightly. Any such increases, if agreed upon, are typically tailored to the specific circumstances of the situation. By contrast, investors have more frequently been able to negotiate participating liquidation prefer - ences across all stages of a company’s develop - ment cycle, compared with recent years. Continued trend towards standardised documentation Documentation for equity-based financing con - tinues to move towards standardisation across geographies, with key model documents origi - nating from the US National Venture Capital Association (NVCA), the British Private Equity and Venture Capital Association (BVCA), the German Start-up Association (Bundesverband Deutscher Startups e.V.) and the Simple Agree - ment for Future Equity (SAFE) (as described in more detail further on in this introductory article). Similar initiatives can be observed in many juris - dictions, including: • Canada (Canadian Venture Capital and Pri - vate Equity Association, or CVCA); • Singapore (Singapore Venture and Private Capital Association, or SVCA);

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

• Switzerland (Swiss Private Equity and Corpo - rate Finance Association, or SECA); and • China (China Venture Capital and Private Equity Association, or CVCA). NVCA The NVCA is a trade association that represents the VC industry in the US. It has been publishing model documents for VC financing rounds since 2003, which have become the industry standard for practitioners and are frequently used even in bespoke and sizeable transactions. The set of documentation is regularly updated once a year to reflect evolving market norms. Today, NVCA documents affect key deal terms and market practice well beyond the shores of the jurisdic - tion they have been designed for. BVCA Similarly, the BVCA provides model documents for early stage investments. They illustrate the value standardised documentation for VC trans - actions holds across jurisdictions. The BVCA documents are utilised for post-seed early stage investments in the UK, particularly in Series A funding rounds – with the aim of facilitating the adoption of an industry-standard legal frame - work for such investments. German Standards Setting Institute The German Standards Setting Institute (GESSI) is a joint project of Business Angels Germany e.V. and the German Start-up Association, which equips (registered) start-ups, business angels and investors with expertly crafted templates for their essential legal documentation, includ - ing convertible loans, term sheets and financing- round agreements. SAFE Similarly widespread in adoption – among early stage companies, in particular – is the so-called

model SAFE agreement. SAFE governs a finan - cial instrument in the early stage financing con - text and was originally established in 2013 by renowned incubation hub Y Combinator. The template contemplates equity-like financing in exchange for yet-to-be-issued shares, providing founders with flexibility and control with reduced paperwork. Prior to conversion, the investor’s claim is limited to prospectively issuable prefer - ence shares – the rights to which are defined in the subsequent financing round. Funds carry no coupon or Paid-in-Kind (PIK) interest in the absence of a predefined maturity. Key features in SAFE agreements include a valuation cap, which refers to a predetermined maximum for equity upon conversion and dis - counts investors receive off the price per share paid by new investors in a subsequently priced equity round (with around 20% being the norm). It became the go-to option for US early stage start-ups, owing to its simplicity and focus on future growth potential, and is gradually replac - ing traditional convertible loan structures as the preferred financing option. Drawbacks that come with the use of the SAFE structure include an absence of protection or control rights on the part of investors and, with regards to the founding team, a potential underestimation of their collective dilutive effect if used vis-à-vis multiple investors consecutively. Increasingly exacting foreign direct investment standards Foreign direct investment regulation has become increasingly relevant in the context of cross- border financing rounds in growth companies, holding the potential to delay closing for non- domestic investors. This trend is evident not only in the US but also in EU countries such as Germany.

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

CFIUS The scope of the Committee on Foreign Invest - ment in the US’s (CFIUS) jurisdiction expanded significantly with the enactment of the Foreign Investment Risk Review Modernization Act (FIR - RMA) in August 2018. Notably for growth com - panies, transaction parties are required to submit a mandatory CFIUS filing at least 30 days prior to closing, irrespective of deliberate transac - tion structuring to grant foreign investors solely passive economic and no other governance or contractual rights. This signifies a re-definition of the “completion date” of a transaction as the date on which any equity transfers to a foreign investor. Most mandatory CFIUS filings relate to US companies involved in advanced technolo - gies (eg, semiconductors) and/or personal data. On 18 November 2024, the US Department of the Treasury issued a final rule vesting addition - al authority in CFIUS to review “non-notified” transactions, while generally establishing higher minimum penalties for non-compliance. Recent developments reflect heightened con - cern regarding Chinese investors. Prominent examples include the required divestment and removal of improvements on land purchased by MineOne (a Chinese company) within one mile of an Air Force base and the blocking of the Nippon Steel/US Steel transaction after CFIUS referred the deal for a Presidential decision. For 2025, the US President’s “America First Investment Policy” suggests there will be enhanced focus on restricting Chinese invest - ment in “strategic” sectors (including technolo - gy, critical infrastructure, healthcare, agriculture, energy, and raw materials), an expansion in the scope of “critical technologies” that can neces - sitate a mandatory CFIUS filing, the establish - ment of a “fast-track” review process “to facili -

tate greater investment from specified allied and partner sources in US businesses involved with US advanced technology and other important areas” and an attempt to work with Congress to expand CFIUS’s jurisdiction to review “green - field” investments. With effect as of 2 January 2025, a Final Rule issued by the US Department of the Treasury requires US persons to notify certain outbound investment transactions and prohibits certain outbound investment transactions, in each case involving persons of “countries of concern” (cur - rently only China) that engage in “covered activi - ties” involving certain sensitive technologies and products in the semiconductors and microelec - tronics, quantum information technologies, and AI sectors. Foreign Trade and Payments Ordinance The past few years have also seen ever-increas - ing impediments and more exacting standards of review for non-EU investors. At the EU level, the regulatory framework for foreign direct invest - ment (FDI) control is governed by Regulation (EU) 2019/452. However, a significant variance exists among national screening mechanisms, impacting the effectiveness and efficiency of the system in addressing security and public order concerns. Notably, in Germany, there is a 10% threshold in certain cases of critical infrastruc - ture that may include less sizeable companies. If a non-EU/non-European Free Trade Associa - tion foreigner seeks to acquire at least 20% of the voting rights in a German company in one of 19 security-relevant areas of high and future technology, a reporting obligation is triggered. In 2023, seven EU member states collectively accounted for 85% of all cases submitted, underscoring a concentration of screening activ - ities. Given that 80% of FDIs within the EU were

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

concentrated in six key sectors – namely, Infor - mation and Communications Technology (ICT), wholesale, retail, financial activities, professional activities and manufacturing – the control of FDI assumed heightened significance in regulating these sectors. The six main jurisdictions of ori - gin were the US, the UK, the United Arab Emir - ates, China (including Hong Kong), Canada and Japan. Outlook for 2025 Despite continued significant geopolitical uncer - tainty, particular headwinds that have held back activity in the VC industry during the post-pan - demic years may be fading in 2025: a shift back to more accommodating monetary policy condi - tions, ventures that have tended to “de-risk” by increasing focus on profitability as opposed to growth, policy trends such as a recognition of the start-up industry as a driver for prosperity in Europe and an openness on the part of the new US administration in respect of crypto-curren - cies all point to a general resurgence of activity. While the lackluster environment for (sizeable) exits has strained the traditional VC model over the past couple of years, promising candidates, notably in the fintech space, including Stripe, Revolut, Klarna and Chime, may alleviate linger - ing concerns. In terms of funds to be deployed, AI is expected to remain the primary focus for VC investors globally. From generative AI that produces con - tent to agentic AI that operates independently, the fields of application are expected to pro - foundly affect virtually every industry, includ - ing healthcare, law and software development. Beyond AI, healthcare and biotech continue to be prime investment sectors, including due to their relative resilience in economic downturns, in both the US and Europe.

Given the current and ongoing geopolitical developments, defence technology and cyber - security are also becoming increasingly impor - tant, illustrated by massive defence technology rounds including, but far from being limited to, California-based Anduril Industries and Mach Industries (specialised in advanced autonomous systems and systems for vertical take-off and landing as well as cruise missiles and other high- performance vehicles) and German start-up Helsing which develops AI software for defence applications. As a notable intergovernmental ini - tiative, the NATO Innovation Fund (NIF) – backed by 24 allied nations and equipped with EUR1 bil - lion – further illustrates the growing institutional focus on defence tech, with prominent venture capitalist Klaus Hommels (Lakestar) serving as chair of NIF’s board of directors. Due to the European Commission’s five-year plan to streamline regulations and accelerate investments, an instrumental step in attracting capital for financial services has been taken. The so-called “Omnibus” package covers, inter alia, far-reaching simplifications regarding ESG regu - lations, and aims to reduce the regulatory bur - den on businesses and thus enhance the EU’s global competitiveness. Moreover, the movement toward onshoring high-tech manufacturing is in full swing. Devel - oped country jurisdictions globally are striving to reduce their dependence on global supply chains, opening up new and domestic invest - ment opportunities. FDI regulations play a criti - cal role for countries pushing for onshoring by incentivising foreign companies to invest in local production while safeguarding national security, fostering technology transfer, and supporting economic growth.

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

Exit opportunities Broadly, venture capitalists continue to see a limited number of M&A exits, while hoping that IPO activity could increase in 2025. Although a widespread rebound in IPOs may take time, there is cautious optimism – amid significant market concerns – that a re-opening could offer a promising pathway for sizeable exits. Even if the number of prospective unicorn IPOs in 2025 may be limited, the VC market is expect - ed to feel much-needed relief, because these start-ups hold so much value. According to mar - ket observers, 2025 may see IPO activity from companies such as CoreWeave, Stripe (both US), Klarna, Revolut (both Europe), Shein and Contemporary Amperex Technology (both Asia). For other VC-backed start-ups, the possibility of mid-market or distressed buyouts may be a more feasible and realistic exit option. As many VC-backed companies find growth to consti - tute a currency in depreciation and start-ups are grappling with a path to profitability, bespoke deal terms and features borrowed from private equity (such as contingent consideration com - ponents or purchase price withholding mechan - ics) may be the sole viable option for many exits to occur. Amongst competitors, share-for-share transactions, often coupled with a cash compo - nent, may serve as viable M&A alternative, albeit not perceived by VC backers as an ultimate exit. As a fading bull-market exit option which is unlikely to be available to growth companies in the near term, special purpose acquisition com - panies (SPACs) are facing challenges such as disappointing performances, structural issues, and dwindling investor confidence. A substan - tial portion of the 600-plus SPACs that went public in 2021 are approaching or have already passed their business combination expiration

dates, resulting in liquidation without complet - ing a de-SPAC transaction. Since the beginning of 2021, only 467 de-SPAC transactions have

been completed. Evergreen funds

With the obvious challenges created by a lag - ging market for liquidity events, distributions to LPs and corresponding reinvestments, some have suggested that the at least 200 evergreen funds operating with an indefinite investment horizon in the VC space globally may be part of the industry’s response to a shifting investment landscape. The evergreen fund space is expected by some to grow as the industry tries to mitigate the cyclicality of private markets – albeit subject to regional divergences. The increased flexibility on the part of investment managers may, how - ever, come at the price of significant opportu - nity costs if and when treasury yields are ele - vated and assets locked in. The extent to which open-ended investment funds will contribute to addressing temporary market perturbances will therefore be contingent upon the evolution of LPs’ investment preferences, risk appetite, and patience. Expansion of the secondary market Private secondary transactions have emerged as a crucial component of the market, enabling private companies’ shareholders to sell in the absence of a liquidity event in order to gener - ate liquidity for other investment opportunities or personal financial needs. The structuring of such transactions has become more sophisticated as it involves the handling of contractual restrictions such as rights of first refusal and, more recently, involved tender offers to later-round investors. Existing secondary investment platforms can

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

open doors to diversification across different industries, stages of growth and geographies. In recent years, numerous successful growth companies found themselves compelled to remain private for extended periods. This con - trasts with the dynamics that prevailed through - out most of the 2010s, when the choice may have been strategic and driven by abundant private funding options. However, given dimin - ishing exit opportunities at sufficiently attractive terms, this decision has become less discretion - ary in today’s market conditions. Especially for early stage investors, secondary markets can offer an attractive opportunity to exit their invest - ment earlier than anticipated, which becomes particularly pressing when the start-up experi - ences substantial value appreciation prior to reaching a stage where it either goes public or becomes an attractive M&A target. At the same time, substantial challenges remain, especially concerning information disparity and particularly on the buy side, where investor demand and willingness to conduct due dili - gence on growth companies may not be able to adequately address existing supply at all times. Buyers have been seen to anticipate steep dis - counts regarding the net present value of their investment objects. Nonetheless, liquidity in the private marketplace has increased during the past few years, facilitated by initiatives such as Nasdaq Private Market, an initiative by the Lon- don Stock Exchange that has facilitated more than USD45 billion in transactional volume since inception; Forge Global, that expanded into the European market in 2024; and others. The global marketplace for secondary transac - tions grew from USD109 billion to a record high of USD152 billion. Against this background, some expect that discounts may become less

pronounced in the future or even cross into pre - miums, leading to secondary purchases above market value. This trend may exacerbate investor hype for access to particular companies (such as those in AI) and widen the chasm between the top performers and lower-conviction start-ups. Complementary financing structures With VC deal-making expected by many to rebound in 2025, there is potential for a shift towards a more coherent blend of equity and non-dilutive financing within the capital structure of growth companies. Globally, start-ups are facing an environment still shaped by a non-negligible discount rate, making debt funding an option that requires careful con - sideration. However, as existing loans mature, borrowers will likely seek refinancing options and placing reliance solely on equity financ - ing may not suffice. Additionally, there is likely to be a growing demand for non-dilutive debt financing in sectors requiring substantial capital investment – for example, real estate, crypto- mining, aerospace and space technology, as well as clean energy and renewable technology. Besides a persistent bid-ask spread between investors and start-ups as to the valuation evolu - tion of sophisticated private credit concepts, as well as certain subsidised programmes (such as that operated by the European Investment Bank) have contributed to the increasing popularity of venture debt which studies assess accounts for as much as 15% of all venture capital trans - actions in the US. Worldwide, venture debt is forecast to reach a market volume of USD43.16 billion in 2025. Anticipated rebound in VC deal-making in 2025 Notwithstanding persistent challenges in the VC market and the struggles faced by many com - panies in securing funding since 2021, VC deal-

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INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP

making is anticipated to rebound to a certain extent in 2025 and beyond. Investors are hopeful that macroeconomic and monetary policy conditions will provide for a suf - ficient degree of certainty, permitting a deploy - ment of dry powder and an exploitation of back - logged opportunities due to a lack of activity since 2023. On the other hand, pressures to find exit opportunities exist, as LPs are yet to realise capital inflows often perceived as overdue and the number of exit candidates with significant valuations has been growing. VC investments in AI, in particular, can be expect - ed to further outpace investment in all other sec - tors – even though the focus may broaden into a wider range of sub-sectors including industry solutions and AI-enabled robotics. While the development of crypto, fintech or cleantech are highly contingent upon broader macro trends, industries such as defence tech and cybersecu - rity will likely continue to attract interest from VC investors against the background of geopolitical tensions.

Market observers believe that there will not be a return to the heady days of 2021, as start-ups and investors act with more discipline going forward. Nonetheless, growth companies and the VC industry will most likely be key drivers behind many of the breakthroughs and innova - tions of the 21st century and a shaping force for the long-term fate of the global economy.

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ARGENTINA

Brazil

Paraguay

Chile

Uruguay

Buenos Aires

Argentina

Law and Practice Contributed by: Manuel Tanoira, Lucía Rivas O’Connor, Luis Merello Bas and Dolores Nazar TCA Tanoira Cassagne

Contents 1. Trends p.20

1.1 VC Market p.20 1.2 Key Trends p.20 1.3 Key Industries p.20 2. Venture Capital Funds p.21

2.1 Fund Structure p.21 2.2 Fund Economics p.21 2.3 Fund Regulation p.22 2.4 Particularities p.22 3. Investments in Venture Capital Portfolio Companies p.23 3.1 Due Diligence p.23 3.2 Process p.23 3.3 Investment Structure p.23 3.4 Documentation p.24 3.5 Investor Safeguards p.25

3.6 Corporate Governance p.26 3.7 Contractual Protection p.26 4. Government Inducements p.27 4.1 Subsidy Programmes p.27 4.2 Tax Treatment p.28 4.3 Government Endorsement p.29 5. Employment Incentives p.29 5.1 General p.29 5.2 Securities p.30 5.3 Taxation of Instruments p.30 5.4 Implementation p.31 6. Exits p.31 6.1 Investor Exit Rights p.31 6.2 IPO Exits p.31 6.3 Pre-IPO Liquidity p.32 7. Regulation p.32 7.1 Securities Offerings p.32 7.2 Restrictions p.33

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ARGENTINA Law and Practice Contributed by: Manuel Tanoira, Lucía Rivas O’Connor, Luis Merello Bas and Dolores Nazar, TCA Tanoira Cassagne

TCA Tanoira Cassagne is one of Argentina’s leading full-service law firms, founded in 2011 and based in Buenos Aires. The firm advises clients across a broad spectrum of industries, with a particular focus on start-ups, venture capital, M&A and capital markets. The firm’s venture capital team, the largest in Latin Amer - ica, consists of over 20 professionals, offering comprehensive legal services in structuring in - vestments, fundraising, cross-border transac - tions and corporate governance. Based in Bue -

nos Aires, TCA also provides legal counsel to tech start-ups, corporations and venture capital funds in the region. Among the firm’s clients in the venture capital space are Galicia, Mu - ral, Rappi, Xapo, Cabify, Bresh, Newtopia, The Yield Lab, Byx Ventures, YPF Ventures, Newto - pia, Shefa VC (IRSA), NATAN VC (Bind), Blukap Ventures, Alina VC, Innventure, Panambi Ven - tures, which receive assistance with a variety of complex transactions and regulatory matters.

Authors

Manuel Tanoira founded TCA Tanoira Cassagne in 2011 and leads the firm’s venture capital practice. With over 25 years of experience, he specialises in advising start-ups, VC funds,

Lucía Rivas O’Connor is a lawyer at TCA Tanoira Cassagne and graduated with honours from the Law School of Universidad Austral. She has more than ten years of

and corporations on investment rounds across all stages. He was a co-drafter of Argentina’s Entrepreneurial Capital Support Law (No 27.349) and is also a professor at Universidad de San Andrés, teaching Venture Capital, Entrepreneurship, and Private Equity in the Master in Finance, Law & Corporate Governance programme. He is a member of ARCAP and a co-founder of ASEA, where he also serves on the Public Policy Board.

experience in venture capital and start-ups and specialises in advising entrepreneurs, start- ups, investors, venture capital funds, and corporate venture capital on cross-border transactions, primarily involving companies based in Latin America. She was a co-drafter of Argentina’s Entrepreneurial Capital Support Law (No 27.349), which was enacted in 2017. Lucía is also a collaborator and professor at various universities, contributing to initiatives and postgraduate courses focused on advising and training entrepreneurs and SMEs.

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ARGENTINA Law and Practice Contributed by: Manuel Tanoira, Lucía Rivas O’Connor, Luis Merello Bas and Dolores Nazar, TCA Tanoira Cassagne

Luis Merello Bas is a lawyer at TCA Tanoira Cassagne and graduated from the Law School of Universidad de Buenos Aires. He holds a Master’s degree in Law and Economics from

Dolores Nazar is a lawyer TCA Tanoira Cassagne and graduated from Universidad Austral. She holds a postgraduate degree in Business Legal Advisory and a

Universidad Torcuato Di Tella. Among the various courses and seminars he has participated in, highlights include the “Intellectual Property Course” and “Legal and Financial Structuring of Credit Operations” . His practice focuses on advising start-ups and companies developing new businesses, as well as venture capital funds, where he provides counsel on start-up organisation, capital structuring, financing rounds, strategic alliances, mergers and acquisitions, venture capital fund structuring, and implementing venture capital within corporations, among other related tasks.

Master’s in Business Law. She focuses on structuring start-ups, distributing capital between founders and investors, and the local and international structuring of venture capital funds and innovation funds for large corporations. Dolores works on the management and creation of Entrepreneurial Capital Institutions and their registration in the RICE (Entrepreneurial Capital Institutions Registry), assisting in venture capital fundraising and transaction structuring, and providing comprehensive legal advice to start-ups on corporate law matters. She was a co-drafter of Argentina’s Entrepreneurial Capital Support Law (No 27.349).

TCA Tanoira Cassagne Juana Manso 205 Piso 7 Puerto Madero Ciudad de Buenos Aires Argentina

Tel: +54 11 5272 5300 Email: vc@tca.com.ar Web: www.tca.com.ar

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ARGENTINA Law and Practice Contributed by: Manuel Tanoira, Lucía Rivas O’Connor, Luis Merello Bas and Dolores Nazar, TCA Tanoira Cassagne

1. Trends 1.1 VC Market Market Overview

and accelerators like SF500 and GridX. Food - tech and agritech companies also experienced growth. Political changes have added another layer to these trends. Fundraising slowed before the 2024 US elections, but Argentina’s new govern - ment policies after the elections drew investor interest to the region. The country is gaining attention as a prime spot for investments in lith - ium, oil and gas, mining, and knowledge-driven sectors, with deal activity picking up sharply by early 2025 compared to late 2024, and increas - ing significantly in early 2025. 1.3 Key Industries Leading Industries in Venture Capital In 2024, foodtech and agtech topped Argen - tina’s venture capital scene, fuelled by a push for sustainable practices and origin-based food certification. Biotech also stood out, boosting efficiency and cutting chemical use in agricul - ture, a vital sector for Argentina and Brazil, both global food production leaders. The region’s early embrace of tech solutions, driven by cli - mate pressures and tight agricultural timelines, has made it a hotspot for testing new ideas. Market insights highlight the key sectors attract - ing funds in 2024: agtech; entertainment; food - tech; biotech; SaaS (software as a service); and AI. Notable transactions from last year include: • BRESH in entertainment; • AgroToken in agtech with a SAFE round of USD12.5 million; • Nera in agtech, with a capital injection of USD10 million; • Kilimo in agtech with a Series A round of USD7.5 million;

Argentina has one of Latin America’s long - est-standing start-up ecosystems, with roots stretching back to 1999. Despite facing econom - ic ups and downs and a shortage of available capital, this ecosystem has shown remarkable staying power and promise for growth. If Argen - tina stabilises its economy, opens up to inter - national markets, and reduces its tax burden, it could become a major venture capital hub in the region. The country has a large pool of skilled professionals and innovative talent that it could leverage for growth. 1.2 Key Trends Current Trends in Venture Capital Investments Over the past year, global economic pressures have reshaped venture capital activity in Argenti - na. Investors have faced a tough landscape with reduced liquidity, prompting more cautious deal- making and a wave of down rounds leading to fewer deals and lower valuations. This shift has pushed due diligence into sharper focus, with start-ups now judged more on solid revenue and traction rather than projections. Financing has leaned heavily on SAFE (Simple Agreement for Future Equity) rounds, while tra - ditional equity deals have been less common. Valuations, once inflated by a flood of US capi - tal post-pandemic, have adjusted downward as American monetary policy tightened, hitting Latin America, one of the world’s least-funded regions, particularly hard. Many Argentine start- ups struggled to secure funding, resulting in staff cuts and valuation declines. However, 2024 brought a modest upturn, espe - cially in biotechnology, driven by venture funds

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