December 16, 2022

Is every new company a startup?

The term startup is used to describe young companies that are characterised by a high degree of innovation and are aimed towards rapid growth. The prerequisite for this is a scalable business model.

Typically, startups therefore need capital in order to quickly establish their business model on the market and to scale it. They usually first seek this from business angels or private investors, and later from venture capital funds. In some cases, they also initially finance the company from their own funds, through friends and family or external borrowing.

The startup Participation Network

In order to secure the investment, a set of contracts has been developed which, in addition to the articles of association, provides for an investment and/or participation agreement, rules of procedure and management service agreements. In addition to the price per share, these contracts regulate the influence of the investors on the company and, in particular, provide for the investors' veto rights, as well as rules on how the capital is distributed, for example in the event of a sale of the company, and how founders and employees are to be tied to the company. Typical areas of regulation are tag-along drag-along rights, participation rules, vesting, guarantees, anti-dilution and liquidation preferences.

This situation brings with it a multitude of legal issues ranging from company formation, financing rounds, freelance or employment contracts to agreements with B2B or B2C end customers.