Like any self-respecting entrepreneur, a start-up boss doesn’t really like administration and legal matters. However, neglecting the content of certain documents can be costly. The shareholders’ pact, or partners’ pact, is a good example of this since it governs relations between partners and investors. In this period of tougher germination conditions, it is even more important to pay attention to it.
Before plunging headlong into the conditions and small clauses of the shareholders’ agreement, you have to be accompanied. “Being advised by a specialized lawyer is essential. You can find plenty of lawyers who do business law but know nothing about start-up shareholder agreements that raise funds with VCs [fonds de capital-risque, NDLR] », emphasizes Pierre-Antoine Dusoulier, CEO of Ibanfirst, international payment platform for SMEs, and business angel.
“Many entrepreneurs outsource this part to fundraisers, but this is not the right approach. Better to go see a lawyer who is used to making deals, not necessarily a rock star, ”adds his side. Frederic Montagnonmulti-entrepreneur and business angel.
The rise of French Tech in recent years has given rise to firms specializing in tech and pushing existing ones to set up departments solely dedicated to start-ups.
imagine the worst
Once a lawyer is chosen, a founder must keep in mind that he will have to make concessions. “Bringing investors into the capital does not only mean taking a check but giving rights to others”, underlines Charles Degand, co-founder of the business angel community Angelsquare.
Another rule to keep in mind before creating the pact: imagine the worst. What happens if a partner leaves the company? If he becomes disabled? If he dies? “There are no good or bad rules, but you have to plan for it,” says Frédéric Montagnon. And to add: “In any case, you cannot leave 30% of your business to someone who is no longer there. »
If the first round brings in one or several dozen investors, it is not necessarily useful to include them all in the shareholders’ agreement, according to Louis Oudot de Dainville, partner at Gide.
“To avoid having too many people in the pact and having everyone agree to change something, we recommend creating separate mini-pacts. For example, limiting the pact to the founders and 10 investors, then putting the employees and small business angels in mini-pacts,” explains the lawyer. But the business angels still have to accept… “This necessarily gives them fewer rights” adds Louis Oudot de Dainville.
The governance game
The lawyer also draws the attention of entrepreneurs to the investment funds of large companies. “When a corporate investor enters the capital, we forget to include confidentiality and conflict of interest clauses so that the corporate does not use the technology of the start-up for its activity”, indicates Louis Oudot de Dainville.
Governance issues take up a lot of space in the shareholders’ agreement, in particular the composition of the board of directors. The collective The Galion Project recently released a guide on this subject. “We must avoid an asymmetry between investors who are used to being on boards and founders who are in their first box. The entrepreneur must be able to set limits and must not to have decisions imposed, in particular operational decisions”, Startuppeurs, all about the “Term Sheet”, this essential document for raising funds, co-founder of Galion.
Watch out for the exit
The life of a start-up is certainly punctuated by the entry of new investors but also by exits (partially or totally in the event of a sale). There are more or less binding exit clauses (transfer in five years for example) or the appointment clause, which sets a date on which the partners undertake to seek liquidity. Exit conditions are reviewed each time new investors enter.
“Even the most seasoned entrepreneurs are not aware of all classes of action. However, you should know that seed shares do not give the same rights as those in series D”, says Pierre-Antoine Dusoulier, in reference to preference shares, that is to say securities with specific rights, as a right of redemption or priority redemption.
“When a valuation is very high, it means that investors will use themselves first,” warns Charles Degand. And if the valuation is lower than expected, the founders can walk away… with nothing.