Beyond venture capital – the fundraising alternatives for start-ups

Monday 13 December 2021

Richard Spink 
Burges Salmon, Bristol


A report on the joint session of the Closely Held and Growing Business Enterprises Committee and the M&A Law Committee, with support from the European Regional Forum, the Securities Law Committee, the Healthcare and Life Sciences Committee and the Technology Committee at the From Start-Up to IPO Conference in Paris


Monday 18 October 2020


Giuseppe Coco Ughi Nunziante, Milan; Young Lawyers’ Committee Liaison Officer, IBA Closely Held and Growing Business Enterprises Committee
Noreen Weiss MacDonald Weiss, New York; Membership Officer, IBA Closely Held and Growing Business Enterprises Committee


Christian Becker Gorg, Munich
Frederic Cohen Foley Hoag, Paris
Sharon Gazit Goldfarb Seligman, Tel Aviv; Co-Chair, IBA Healthcare and Life Sciences Law Committee  
Miguel Tornovsky Pinheiro Neto Advogados, São Paolo; Special Projects Officer, IBA Latin American Regional Forum



The ecosystem for early and growth stage investment has typically been dominated by angel investors and venture capitalists, utilising convertible debt instruments and progressing to preferred equity.

Venture capital investment in 2020 increased significantly and has surged further in 2021, with record growth in various jurisdictions. But we have also seen a change to the ecosystem, with different players and approaches, with the traditional fundraising base of friends and family, seed etc developing with more players involved, from government funding and support, incubators, corporates, institutions, crowdfunding, licensing structures and sandboxes.

The session reviewed the types of investors and certain aspects of the typical structures adopted.


Corporate venturing

More corporates are now investing, investing in early stage companies to access new technology and ultimately acquiring the entire share capital once the technology has been proven. The corporate venturing phase 20 or so years ago was felt not to have been hugely successful but corporates are back in the market again, some behaving like traditional VCs.

Not all corporates are able to be sufficiently nimble in this fast-moving environment, which is very much more investee friendly than before. Others have set up their own VC arms rather than adopting a conventional M&A approach.

One challenge is that start-ups need their freedom to develop new products quickly and need to change their business model in the short term. This can cause issues for corporate VCs which want to fit development of new products into their own product portfolio. And of course there is the usual concern that having a strategic investor can limit exit options or affect the view of customers in dealing with the company.

This renewed investment by corporates in start-ups is to some extent at least a response to pressure in the pandemic and also reflects a degree of easing of concerns in some jurisdictions, for example, Brazil, about potential shareholder liability piercing the corporate veil (indeed, in Brazil there have been extreme examples, albeit rare, of liability arising from entry into a non-binding MOU or having the same name as an insolvent company). That culture of uncertainty led to a focus on use of convertible loan notes rather than equity.


Incubators are becoming increasingly common and regularly used in jurisdictions such as Israel. The private-public incubator model combines investment from private investors and governmental funding.

In Israel, a typical structure is that the Innovation Authority grants incubator licences to private investors (whether on a geographical basis or sector basis, eg, pharma/cleantech). Each incubator undertakes to provide certain services to the chosen companies – laboratories, financial services, premises and the like – but the main contribution is the investment which must be approved by the Innovation Authority. The split between investors and the Innovation Authority is often approximately 15:85. The typical investment IAA size is NIS 1.85 million (approximately €480,000). The Innovation Authority investment amount is likely to be higher in relation to companies of peripheral incubators and to companies in certain fields, which the Innovation Authority wants to encourage.

In France, typically the support for incubators is provided by corporates rather than government directly, often from the US. For example, in the biotech and pharma space where start-ups need equipment and labs, corporates are providing the resources and developing projects alongside big pharma. The French laboratory Servier has announced the opening near Paris of an incubator dedicated to life science start-ups in association with Biolabs, a US company which operates several similar facilities in the US.

In Brazil, support for incubators is expanding quickly, particularly on the fintech side. Law firms often provide discounted rates for legal support and support their own incubator programmes, particularly in heavily regulated sectors where the law firm’s support is critical.

Angel investors/family offices

In the US, there are more demographic and niche-market angel groups forming, ie, focus on female or minority founders, female investors, ESG investing etc. 

In Italy, angels and family offices are structuring in a more sophisticated way, and the market now sees a network of entities to create an ecosystem good for investors and start-ups rather than relying on angel investors investing in sectors that they are familiar with.

The overall view was that many more people are now investing in start-ups. Members of the panel indicated that they themselves invest in start-ups and angel funds (notably, Sharon Gazit has formed the first women’s investment club in Israel) as well as deals sourced through online crowd-finance platforms.

This trend was to a degree supported by a poll amongst the audience which indicated wider direct investment by the audience in start-ups than say ten years ago.

Government funding

In Germany, the government is often the first source of support for start-up companies, one particular example being the German Hightech Founder Found. This is a very lean process and is a very important factor for the support of the German start-up industry.

In Israel, the Innovation Authority makes grants that are deemed as debt but are essentially repaid as royalties, out of sales revenues, so are not traditional debt.

In France, BPI, the French state-owned bank, offers a range of financing tools aimed at assisting companies to grow. These financings compete with private equity financing in that they may be used not only to finance assets but also projects (eg, recruitment of a team, advertising, working capital, etc). BPI also offers financing ‘at risk’ for particular R&D projects (ie, reimbursement will depend upon the success of the project so is attractive for the company).

In Italy, there is a €1bn fund to foster start-ups, taking a VC approach through minority investments, and increasingly with an impact focus. State-owned funds are a common first port of call for start-ups.


The panel debated whether there has been an increase in the role of universities and other academic institutions.

In Israel, academic institutions grant licences through their Technology Transfer Offices and incorporate their own VC funds which invest in companies based on academic institution research.

Alternative funding structures

The focus then moved to how companies are funded, with particular emphasis on convertible loan notes (CLNs) and alternative instruments.

Cash flow issues which arise from using traditional convertible debt structures have in part driven the increased use in some jurisdictions of the Simple Agreement for Future Equity (Safe). In Israel this is becoming an industry standard.

Safes are similar to warrants but do not specify a specific price per share at the time of the initial investment. The Safe investor receives the future shares when a priced round of investment or liquidity event occurs. Investors and the company negotiate the mechanism by which future shares will be issued, for example, what constitutes a qualifying round, minimum and maximum valuation, discounts etc and defer actual valuation. Importantly, there is no interest payable on the amount invested or maturity date, avoiding the cash flow disadvantages of a CLN. It is also not regarded as debt in many jurisdictions and that can carry advantages from a regulatory perspective.

In Germany, there are issues as regards conversion (companies must have a stated capital) so loans are most commonly used, while in France warrants and CLNs are most common, with investment being made on satisfaction of milestones. In Italy, SAFEs are not commonly used and the CLN route is more typical.

Alternative structures include licence models, under which the company issues equity for a licence over technology, and these are regularly seen in France and Italy.