A&O leads the standardized Czech start-up documentation launch in Prague

Inspired by the success of US National Venture Capital Association or British Private Equity & Venture Capital Association standard documentation  and similar projects in EU jurisdictions such as Estonia, a number of Czech-based law firms have joined forces to prepare an easy-to-use set of investment documentation. 

What is Czech Startup Documentation?

Czech Startup Documentation is meant to ease the way to funding for new start-ups and reduce the time spent on legal documentation for initial investment rounds. Standardization of documentation will allow start-ups (and investors) to focus on the business side of things, and facilitate creation of more projects, which will in turn create more opportunities for investment for all stakeholders.

This approach has proven itself in other jurisdictions, such as the US, UK, and Estonia, where standardization, among other factors, has helped kick-start a very vibrant market of (especially) tech start-ups, many of which have been helped by the fact that initial legal costs were greatly reduced and founders had more time to focus on their business.

As both investors and founders and their respective legal counsel (if they agree to use the standardized documentation) start with the same understanding of all transaction documents, the negotiations can focus solely on commercial points and virtually omit all technical aspects of the documentation, as these has been already tailored to fit this rather specific type of transaction.

All documents have been prepared in English which we believe will also make the Czech market and its start-ups more attractive for more foreign investors who may now rely on the Czech standard documentation rather than converting laboriously foreign standards to fit the in for the Czech limited liability company and the applicable Czech law.

What is Included?

The standardized documentation include:

1. Due Diligence Request List, which has been structured to fit a broad variety of start-ups in different sectors, including various legal forms;
2. Convertible Loan Term Sheet and Convertible Loan Agreement, both drafted with the purpose to simplify the drafting and introduce new market standards, which can be accepted across the market;
3. Equity Investment Term Sheet and Equity Investment Agreement, carefully drafted and negotiated between the involved firms with the accent on balance of rights and obligations between the start-up and the investor.  This principle, adopted also in the Convertible Loan Agreement and the Seed Shareholders Agreement below, was paramount for all participants, as only proportionately drafted documentation could be accepted across the market by start-ups and investors alike; and
4. Seed Shareholders Agreement and the Employee Stock Ownership Plan, which were structured as one-size-fits-all, with the aim of allowing for various commercial agreements to be incorporated with ease (eg, the way the Reserved Matters are structured and incorporated throughout the document).

Takeaways

The above documents enable start-ups to use any of these independently or use them all as a set. Any changes and amendments can be compared to the market-standard versions in a way that new businesses with less experience can focus their evaluations on the commercial points. 

After a successful launch in September 2023 and very good feedback from both local start-ups and investors, the involved firms are already in talks of broadening the catalogue of offered documents and will regularly collecting feedback and updating these standard documents.