Venture Deals 4th German Edition

Venture Deals has been translated into many different languages ​​since it was first published in 2012. The first German translation of Venture Deals 4e is out, and Florian Kreis has done an amazing job.

Florian aimed to modify the book as little as possible, even if the passages concerned did not correspond 100% to German good practices but were still feasible to implement. He believes that the structures originally developed in the United States have become the international standard and are an excellent model for Germany.

However, the challenge of revising the book in this way is to place these structures in the context of German law. Sometimes this required minor edits or just using the correct language. In other cases, it was much more difficult.

Here are, in Florian's words, several examples of things he had to modify more thoroughly.

Corporate Law: In Germany, most companies in general and most companies financed by venture capital are structured in the legal form of a "Gesellschaft mit beschränkter Haftung" (GmbH). Large companies often later convert to "Aktiengesellschaft" (AG), especially if they want to go public. The GmbH and the AG are both corporations. In addition, many GmbH & Co. KG companies exist in Germany. They roughly correspond in structure to a limited liability company (LLC). GmbH & Co. KG companies have decisive tax disadvantages for startups and are therefore rarely used in this area. The GmbH has a great advantage in that it can be structured very flexibly. You can deviate very widely from the legal provisions and in practice you do. Most American best practice VC structures can be integrated into the GmbH structure. Often, this integration results in VC-funded GmbH companies having little to do with the GmbH, as contemplated by law.

Board of Directors: There is no Board of Directors in Germany. In the GmbH, the most important body is the shareholders' meeting. The shareholders are represented there and generally have a voting right proportional to their participation. In addition, there are general managers as executive bodies. In the venture capital sector, it is common to introduce a third body in addition to the meeting of shareholders and management. This third body is often called an advisory board (Beirat), sometimes also a supervisory board (Aufsichtsrat). In practice, certain functions of the general meeting are transferred to such an advisory board, for example, the appointment and supervision of the managing directors or the decision-making power in the event of conservatory provisions. Ultimately, however, it is the shareholders' meeting that remains the most important body of the GmbH.

Conversion right: In Germany, there is generally no conversion right allowing the holder of preference shares to convert them into ordinary shares at any time. This may not seem like a big deal at first glance, but it has important implications in various aspects, such as the structure of the liquidation preference. In the United States, the right of conversion ensures that holders of preferred stock are not disadvantaged relative to holders of common stock; in Germany, this legal consequence must result directly from the structure of the preferred shares. In some cases, this creates confusion in terms of terminology: in Germany, preference with participation is called “nicht anrechenbare Liquidationspräferenz” (non-compensable liquidation preference), while preference without participation is called “anrechenbare Liquidationspräferenz”. » (preference for indemnifiable liquidation). The negation is therefore exactly the opposite. However, the lack of a conversion right also has implications for anti-dilution protection: in the US this is usually done by adjusting the conversion price. In Germany, the anti-dilution protection is obtained by issuing additional preferred shares. The absence of conversion rights must...