Fundraising in a startup in Spain requires an thorough understanding of the legal processes involved, as it entails formalizing agreements that protect both the company and the investors.

Key considerations for startup fundraising in Spain:

  1. Convertible notes vs. SAFEs: Unlike the US, where SAFEs (Simple Agreements for Future Equity) are commonly used, in Spain they are not valid. Instead, convertible notes are typically employed for fundraising.
  2. Local legal differences: The process of raising an investment round in Spain can differ significantly from that of other countries. Therefore, it is crucial to seek specialized legal advice. These processes involve multiple legal and tax steps, so having lawyers with expertise in commercial and startup law is essential. This ensures that all documentation is properly drafted and compliant with the latest legal regulations.

Key documents in a Spanish investment round:

  • Corporate, accounting, labor, and tax documentation: Investors will require this information to perform due diligence and assess the viability of the investment. Startups should ensure that all these documents are well-organized from the outset, ideally with the help of experienced professionals.
  • Term Sheet: This document summarizes the fundamental terms of the deal, such as the amount of capital to be invested, the valuation of the startup, investor rights, and exit conditions. It’s a non-binding agreement that sets the foundation for the legal contracts to follow.

Corporate, accounting, labour and tax documentation of the company that is going to raise the round. This documentation will be needed by an investor to carry out due diligence and check the viability of the investment. We advise startups from the outset to have all the documentation in order with an experienced professional.

Convertible notes or loans: While SAFEs are not used in Spain, startups and investors typically negotiate the terms of convertible notes, including loan amount, interest rate, maturity date, conversion discount for the next funding round, and the valuation cap for conversion. These terms are laid out in a legal document that defines the rights and obligations of both the startup and investors. Upon maturity or a qualifying financing event, the notes are converted into shares at the agreed valuation.

Investment Agreement: This legal contract formalizes the relationship between the startup and its investors during a financing round. It outlines the terms under which investors will provide capital in exchange for future equity stakes or rights. The agreement protects both parties’ interests and establishes a clear legal framework for the transaction. Typically, a pre-money valuation (the company’s valuation before investment) and a post-money valuation (valuation after the investment) are determined. These valuations dictate the percentage of equity investors will receive in return for their capital.

Term Sheet, or ‘term sheet’: Is a document that summarizes the key terms of a deal, such as the amount of capital to be invested, the valuation of the startup, investor rights, and the exit terms.”

Documentation required for a share capital increase: This documentation is necessary when convertible loans are converted into equity or shares of the startup seeking investment. If the capital increase does not occur due to failure to meet the deadline or the required amount of the funding round, the loans will be returned to the lenders with interest.

When raising an investment round, a startup requires legal advice to ensure that all legal documents are correctly drafted, comply with legal and tax regulations, and protect its interests with respect to investors. Proper legal guidance also helps prevent potential conflicts or disputes in the future. Additionally, lawyers can assist in structuring the investment in a way that optimizes terms for all parties involved and minimizes legal and financial risks.

Supra Legit Lawyers can assist you with the investment round your startup intends to raise.