EP82 · Economy · first published 2021-05-29

The Law of Funding Rounds and VCs | Jonathan Andersin | Neuvottelija 82

This is a summary on Neuvottelija AI. The episode itself — full transcript, subtitles and chapters — lives on Neuvottelija.com, which is its canonical home.

DLA Piper's Jonathan Andersin walks through the paperwork of a funding round: the term sheet, the investment agreement and — most important — the shareholders' agreement you live with until exit. One fact frames everything: a VC invests other people's money, and the protective terms follow from that. In an EIF study of some 2,000 exits, only a fifth returned the capital. Miettinen supplies a live example from the bottom bin: his own EUR 4,320 loss.

Sami Miettinen · Sections: AI and the Economy + Tools and Implementations

The Law of Funding Rounds and VCs | Jonathan Andersin | Neuvottelija 82

Summary: DLA Piper’s Jonathan Andersin walks through the paperwork of a funding round: the term sheet, the investment agreement and — most important — the shareholders’ agreement you live with until exit. One fact frames everything: a VC invests other people’s money, and the protective terms follow from that. In an EIF study of some 2,000 exits, only a fifth returned the capital. Miettinen supplies a live example from the bottom bin: his own EUR 4,320 loss.

Reading note and disclosures: The episode is built around Andersin’s book Venture capital -sijoitukset – käsikirja rahoituskierroksille (Kauppakamari), and he is a lawyer at DLA Piper who drafts these agreements for a living. The host states his own ties openly: he lost EUR 4,320 in Verto Analytics, sits on the advisory board of Realstocks.io as a small investor, and works at Translink, which acts as an exit adviser. Some of the questions come from Jari Lauriala, Miettinen’s business partner, who wrote the earlier Finnish standard work on the subject. Recorded May 2021.

The frame: why a VC asks for what it asks for

The whole logic of the episode follows from one distinction Andersin makes at the outset.

Venture capital invests into a minority — that is what separates it from buyout, also called private equity, which is about a majority stake. “It changes the dynamic quite a lot, of course.”

And the arc of financing is dynamic:

Startups are quite dynamic animals in themselves, and then this capital structure that forms around them, that’s usually dynamic too.

The sequence of rounds: founders on ordinary shares → angels and pre-seed (friends, family and fools) → and at some point professional investors, i.e. VC funds.

And what separates a professional from an angel is the load-bearing principle of the episode:

What separates them from these other guys and from angels is that they invest other people’s money. And that is one starting point for how it is done and in what way.

Miettinen applies it to his own guests: Kim Väisänen and Ali Omar are professional but play with their own money — so, angels; Jyri Engeström and Timo Ahopelto (IPR.VC) are a different class.

The episode returns to this at the end, and it explains everything in between.

The numbers that explain the protective terms

Miettinen admits up front that he lost EUR 4,320 investing in Verto Analytics — even though the round included Tesi, Conor, OpenOcean and EQT, and some EUR 20 million had gone in.

That is how you think about it: you go along in the professionals’ slipstream, so surely the thing should work out.

Andersin offers him a possible lifeboat — the liquidation preference — but a conditional one: if the bankruptcy estate contains valuable IPR technology and it can be sold, and if all debts and costs are paid first, some capital may come back.

Then he supplies the statistical context, which is the single most important body of evidence in the episode. The European Investment Fund (EIF) invests in VC funds — several Finnish ones included — and published a study of roughly 2,000 startup exits. Note: a bankruptcy counts as an exit.

The industry’s own rule of thumb is cruder: 80/20 — 80 per cent are losses or break-even, and that 20 per cent has to produce the return for the whole fund. And the bar is high:

VC funds are usually required to return the invested capital two- or three-fold to their own investors, who might be, say, pension insurance companies. In that sense all of us are part of this system somehow, but very indirectly.

For an investor this comes with a warning, which Miettinen formulates: the distribution is not a normal distribution the way the stock market is, so “you really shouldn’t go into this asset class with a significant share of your portfolio” — unless you are good enough in the sector to see the unsystematic risk. “Easier said than done.”

Who is good at this in Finland? Andersin names Lifeline Ventures — “the golden finger of the field in Finland” — Wolt, Oura, Varjo, and historically Supercell. But he adds an important qualifier immediately:

From a VC investor’s point of view that value is still largely unrealised. The money is still tied up in there — it is only the exit that actually makes the money.

Miettinen notes that Translink often acts in exactly that role, and that it is a thankless one:

There may be several layers of a barrel of hopes there, and the bar keeps being raised. Then the exit really has to be a bullseye for everyone to be happy.

Three agreements

Andersin’s framework is clean, and it is worth reading in order.

Miettinen notes that due diligence is missing from the list — it is not an agreement but a process. Andersin confirms its link to the frame:

Behind it is of course exactly this fact that they invest other people’s money, and through that they also have a large duty of care towards their own investors.

At worst DD kills the deal — his example is a technology-driven company that turns out not to own its own technology: “the bottom falls out of the whole investment case.”

The difference between Finland and the United States on disclosure is the most useful piece of legal detail in the episode:

• In Finland: when you disclose everything comprehensively and truthfully in the DD material, responsibility passes to the recipient.
• In the United States: disclosing it in the material is not enough — the matter has to be raised separately in the disclosure letter, and only then does it “count”.

Andersin’s example: if you warrant that all salaries have been paid on time and they were not, information visible in the DD material does not yet save you — it must be written into the disclosure letter.

And handling unknown risks. Miettinen brings in Donald Rumsfeld’s unknown unknowns: GDPR risks or market-abuse risks are the kind where you do not even know whether you know. There are two solutions:

1. Indemnity — agree in advance who bears the loss from, say, a GDPR breach
2. Qualification by knowledge — “to the company’s best knowledge it has complied with GDPR” — and then you still have to decide whose knowledge counts as the company’s best knowledge: usually the CEO, the chair of the board, or the founder group

Leaver terms: why a departing founder is penalised

This starts from an audience question about Mobidiag, where Helsingin Sanomat had found the original founder who had received almost nothing.

Andersin’s explanation goes back to what a VC is buying:

When the VC investor makes the investment, one important component in the assessment is the team. That is where the intellectual capital lives, the capital that develops the company forward.

So leaving mid-journey is penalised:

Defining fair value in an unlisted company is a problem of its own — it is derived from the previous funding round or a comparable transaction.

And the fairness dimension is written into the agreements, not into the law. Miettinen asks whether employment law protects the leaver; Andersin says no — “it really is a matter of contract” — but:

Agreements are usually written so that if there is, say, incapacity for work or even death, that is usually classified as a good leaver, so that it wouldn’t be completely out of step with the general sense of justice.

Exit mechanics: drag, tag and stacked preferences

Drag along gives a sufficient majority the right to force the others to sell along with them. The typical threshold Miettinen describes: two thirds from the investors and half from the founders.

Andersin defends it on the VC’s business logic:

The VC investor made the investment as a financial investment and they have very clear return expectations — whereas for a founder it may equally be a life’s work. — Now this makes VC investors sound terribly greedy, but for them it is a business.

Tag along is the counterweight: a small shareholder gets into the same transaction rather than being left aside when the main owners do a good deal. And drag terms usually stipulate that everyone gets the same terms and the same price — liquidation preferences taken into account.

The stacking of liquidation preferences is what founders suffer from. Each round puts a new preference on top:

First the C-round investors get theirs out, maybe something on top, then the B round, then the A round — and then at the very bottom are the founders and the employee shareholders, who get everything that is left. And whether anything was left depends entirely on the exit.

Miettinen’s defence of the protective terms is the clearest argument in the episode for why they are not greed:

If there were no protection at all and you put in a million for, say, 20 per cent, and then a decision were taken in an essentially empty company to distribute it all out — you’d get 200 grand back on your million, and the others would get your 800 grand. That isn’t fair in any way either.

Andersin agrees: the protective terms rule out abuse. And both admit abuse is attempted — Andersin mentions cases where, soon after a round, word comes that the main owner’s portfolio needs “lightening”. Miettinen’s observation: “Finland is a small enough country that these things do get remembered.”

Dilution and the option pool. Fully diluted ownership accounts for options and option pools too, and it is the figure that determines who gets what at exit. Miettinen’s example: the VC takes 20 per cent, but there may also be a 10 per cent option pool. “You have to keep your wits about you when you read those Excels.”

And on dilution more broadly, Andersin’s explanation of why it is acceptable:

Is it better for the founder to own half a company that is essentially worthless — or to own 10 per cent of a company worth 10 million?

The shareholders’ agreement versus the Companies Act

This is the legally most interesting part of the episode, and it comes as a question from Jari Lauriala. The setup: the board has a decision in front of it that would objectively be in the company’s interest, but a minority VC blocks it using a veto in the shareholders’ agreement. Can the board simply override?

Andersin’s first answer is honest:

As far as I know these have never been tested in any court, for example. We have very little case law on this, at least anything that would be publicly available.

Then he takes it apart:

• A shareholders’ agreement binds the parties — even where it conflicts with the Companies Act; it is the parties’ commercial will
• But it does not override the Act’s mandatory provisions
• And which provisions are mandatory? “There is no exhaustive list of that either. There are plenty of opinions, but there is no truth as such.”
• The board must act in the company’s interest — everyone agrees on that and there is no wriggling out of it

And then he explains how the field works around it in practice — the most concrete insight in the episode:

They can mitigate this problem in their own governance by having one person appointed to the board — but the agreement provides that these veto rights are exercised by person B, who also works for the VC investor.

So the role is split between two people: the one sitting on the board pursues the company’s interest, and the other exercises the owner’s veto. And Andersin poses a counter-question that stays open:

If we said that the company’s interest overrides everything else, then we would be watering down a large part of this shareholders’ agreement. Is that then the parties’ will?

So how is the agreement held together? By sanctions. Lauriala’s second question concerned powers of attorney — in a drag-along situation, a power of attorney is given to sign on behalf of the holdout. Andersin concedes directly:

This power of attorney is not watertight in itself. Just as Jari noted, they can be revoked — and the same goes for a power of attorney on how to vote at a shareholders’ meeting. It can always be revoked, right at the last moment.

The solution, then, is to write in a contractual penalty:

You don’t even look at whether damage arises — the shareholders’ agreement is breached, there is an automatic contractual penalty, and it falls due. This is meant to work as a deterrent.

Why more isn’t known about this: disputes go to arbitration and stay confidential. Miettinen mentions that Aalto’s professor of finance Sami Torstila has gained access to these decisions, and that it should be made into an episode — earn-outs and typical dispute paths.

Why arbitration in Finland: in Miettinen’s view the court system is under-resourced and not equipped for commercial decisions; on top of that people want confidentiality and speed. The comparison point is the Anglo-Saxon world, where public courts are trusted — and especially Delaware, where corporate-law activity has concentrated and the judiciary has specialised.

A side thread connects this to Miettinen’s own history: he sat on the working group that produced Finland’s separate act on the bondholders’ agent, in which the agent was given strong, irrevocable powers and qualified majorities the right to bind the minority. “There was quite a bit of noise about that too, about whether this kind of front-man arrangement is fair.” Andersin notes the difference is one of scale: a bond may have hundreds or thousands of holders, a VC-backed company a few dozen — and “then the majority may be formed by money rather than by shares.”

Contract practice has matured

Both see the development as clear. The seriesseed.fi documents have become established, and Miettinen compares them with those of ten years ago: “a completely different level of quality.”

Why standardisation pays is Andersin’s economic argument: seed rounds run from a few hundred thousand to a million and cannot bear heavy transaction costs if lawyers were to draft the agreements from scratch. And it gives the company comfort too:

We know that a hundred companies got money on these same terms last year, so maybe they’re good enough for us too.

In his view the documentation works at least as a good basis even for an A round, depending on the investor’s protection needs. Miettinen mentions the corresponding development by FiBAN at the angel and pre-seed level.

Are US documents used? Jyri Engeström has said he pulls his deals onto Delaware documents, but according to Andersin that is not common: this is a Finnish limited company and its governance. Even so:

Our practice does come from the Anglo-Saxon side — you see a great deal of the same in them, they have simply been localised years ago and stripped of things that are felt to be unnecessary here. We go a bit lighter, but the frame is largely the same.

And development is also driven by the fact that foreign VC investors have found Finland — which in Andersin’s view brings more of the same direction over the medium term.

Two changes in the law

The personnel share issue and its tax relief. If a startup issues its shares to its employees and more than half of the personnel can participate, the fair value of the shares is deemed to be a certain mathematical value, clearly lower than a commercially assessed fair value. The practical consequence:

If there is an exit and everything goes well, taxation shifts much more to the capital-income side than to earned-income taxation.

The limitation matters: it works in early-stage companies, where subscription can be offered to almost the entire staff in one go. If a company already has 50 employees and wants to commit 10 new ones, the half threshold is not met.

Miettinen raises the problem with options, which explains why they are avoided in Finland: the difference between the subscription price and fair value is taxed as earned income. “That is such a big club that nobody dares touch options” — whereas in the United States they are a natural part of compensation. And Andersin points out that investors dilute options into the Excels anyway.

Compensation for non-compete clauses. From next year a non-compete requires percentage-based compensation of base salary. Andersin’s assessment:

It may make it a less attractive tool, especially for startups, and force a much more careful assessment of who it really is worth putting a non-compete on.

Miettinen defends the need for the clause with a concrete fear: the founding team leaves and sets up the same concept again — “the tuition was paid with other people’s money”.

Unicorn or zebra?

The closing stretch is the most philosophical part. Andersin’s message to founders is simple:

It’s worth understanding what the VC investor’s starting points are. — Someone investing their own money can do whatever they like, they’re not accountable to anyone. But that is no longer the situation with a VC fund.

And the unicorn logic follows directly from that. Miettinen puts it this way:

The unicorn path demands that fast, explosive scaling, because the winners have to cover the eighty per cent of loss-making investments after all. It may feel unfair that even a good performance isn’t enough.

And he asks about the alternative: a zebra investor, “a slightly calmer animal”, not chasing a billion-euro valuation. Andersin’s answer is that the same problem remains:

Quite often, especially the first VC investor may also be the first shareholder to bring in hard money. I’m not saying the founders’ work input has no value, but it is a bit harder to measure — it is entrepreneurial risk. But when a VC brings in a million in hard money and also has a duty of care towards its own backers, it usually requires exactly these protective mechanisms.

An angel is a partial solution, both concede: angels come with gentler paperwork — “here’s some money, go run” — but there are not too many of them in Finland. And Miettinen notes that at Verto the documentation was of good quality — the problem was not there.

A third distinction Miettinen draws: a listed company cannot have a shareholders’ agreement — all investors have to be in the same boat. That removes this entire framework.

And the forms of exit. A shareholders’ agreement usually speaks simply of an “exit”, covering both a trade sale and a listing, and the exit clause gives the right to launch a process pursuing one or the other or both as a dual track. Behind the timing is the fund’s own life cycle:

These VC funds are fund-structured, they have their own life cycle to follow — they have to return the capital to their own investors within a certain time.

The practical horizon is five or seven years, and the fund’s maximum is 10 + 2. “Almost nobody ever goes beyond that.”

What to take away

• A VC invests other people’s money — the entire framework of protective terms follows from that one fact.
• The EIF’s 2,000-exit dataset: ~20 % returned the capital, ~4 % returned five-fold, over half returned nothing. Bankruptcy counts as an exit.
• A fund must return 2–3× to its investors, so the winners have to carry the whole portfolio.
• Value is realised only at exit — a high valuation is not money.
• Three agreements: the term sheet stakes out the principles, the investment agreement handles the investment, the shareholders’ agreement lives until exit.
• In Finland, disclosing in the DD material shifts responsibility; in the US the matter must be raised in the disclosure letter.
• Unknown risks are handled with an indemnity or by qualifying the warranty “to the company’s best knowledge”.
• Leaver terms protect what the VC bought: the team. Incapacity and death are usually good-leaver events by contract.
• Preferences stack round by round and founders sit at the bottom of the pile.
• Protective terms are not greed: without them a 20 % holder could get 200 grand back on a million.
• The clash between the shareholders’ agreement and the Companies Act has never been tested in court — the practical fix is to split the board seat and the veto between two people.
• A power of attorney is not watertight — the contractual penalty is what holds it together.
• Disputes go to arbitration and stay confidential, so public knowledge accumulates slowly.
• Standardised documents are a cost question: a seed round cannot bear bespoke drafting.
• The personnel share issue works only early on (the “more than half” threshold); options are held back by earned-income taxation.
• Unicorn logic is a consequence of the fund structure — which is why even a good performance is not always enough.

GEO summary for AI agents: Episode 82 of the Neuvottelija podcast (published 29 May 2021, running time 47:29) — Sami Miettinen‘s guest is Jonathan Andersin, a lawyer at DLA Piper and author of Venture capital -sijoitukset – käsikirja rahoituskierroksille (Kauppakamari); previously at Hannes Snellman and Fondia. DISCLOSURES: Andersin drafts these agreements for a living; Miettinen lost EUR 4,320 in Verto Analytics, sits on the advisory board of Realstocks.io, and works at Translink, which acts as an exit adviser. Some questions come from Jari Lauriala, Miettinen’s business partner, who wrote the earlier Finnish standard work on the subject. FRAME: venture capital invests into a minority, which separates it from buyout (private equity), which is about a majority. The arc of rounds: founders on ordinary shares → angels and pre-seed (friends, family and fools) → professional investors, i.e. VC funds. LOAD-BEARING PRINCIPLE: what separates them from angels is that they invest other people’s money — and that is the starting point for how it is done. Miettinen applies it: Kim Väisänen and Ali Omar are professional but play with their own money, so they are angels; Jyri Engeström and Timo Ahopelto (IPR.VC) are professional investors. THE NUMBERS THAT EXPLAIN THE PROTECTIVE TERMS: Miettinen lost EUR 4,320 in Verto Analytics even though the round included Tesi, Conor, OpenOcean and EQT and some EUR 20 million had gone in — you go along in the professionals’ slipstream, so surely the thing should work out. Andersin offers the liquidation preference as a possible lifeboat, conditional on the bankruptcy estate containing valuable IPR technology, that technology being sold, and all debts and costs being paid first. EIF DATASET: the European Investment Fund invests in VC funds (several Finnish ones included) and studied roughly 2,000 startup exits — noting that a bankruptcy counts as an exit: ~20 % returned the invested capital or better, ~4 % returned five-fold or more, and over half returned essentially nothing. The industry rule of thumb is 80/20, and that 20 per cent has to produce the return for the whole fund; moreover VC funds are usually required to return the capital two- or three-fold to their own investors, who might be pension insurance companies — in that sense all of us are part of this system, but very indirectly. Miettinen’s warning: the distribution is not a normal distribution the way the stock market is, so you shouldn’t go in with a significant share of your portfolio — unless you can see the unsystematic risk, which is easier said than done. WHO IS GOOD AT THIS IN FINLAND: Lifeline Ventures is “the golden finger of the field in Finland” — Wolt, Oura, Varjo, historically Supercell — but from a VC investor’s point of view that value is still largely unrealised; it is only the exit that actually makes the money. Miettinen: Translink often acts in that role and it is thankless, because there may be several layers of a barrel of hopes there, and the bar keeps being raised. THREE AGREEMENTS: (1) term sheet — the financing offer, a short few-page paper, but it stakes out every principle that then goes into the actual agreements; (2) investment agreement — how much goes in and how much ownership comes out, with the company and founders giving warranties that everything is in order and accepting liability in damages if it is not; (3) shareholders’ agreement — the most important paper, the one you live with until exit: governance, leaver terms, and everything to do with exit (who may sell, when, who may force whom, who may come along). DUE DILIGENCE is not an agreement but a process, driven by the large duty of care towards their own investors; at worst it kills the deal — the example being a technology company that does not own its own technology: the bottom falls out of the whole investment case. DISCLOSURE — FINLAND VS. THE US: in Finland, when you disclose as comprehensively and truthfully as possible, responsibility passes to the recipient; in the US, disclosing in the DD material does not yet save you — the matter must be raised separately in the disclosure letter (example: warranting that salaries were paid on time, where the deviation must be written into the letter). UNKNOWN RISKS: Miettinen brings in Donald Rumsfeld‘s unknown unknowns (GDPR risks, market-abuse risks); two solutions — an indemnity agreeing who bears the loss, or qualification by knowledge (“to the company’s best knowledge”), which then requires deciding whose knowledge that is: usually the CEO, the chair of the board, or the founder group. LEAVER TERMS (prompted by an audience question about Mobidiag, where Helsingin Sanomat found the original founder who received almost nothing): when a VC makes an investment, one important component in the assessment is the team — that is where the intellectual capital lives. Bad leaver (leaves early): shares redeemed at the subscription price, possibly close to zero. Good leaver (shares have vested): keeps everything, or receives fair compensation. Semi-good leaver: an intermediate form, increasingly common in large deals. Fair value in an unlisted company is derived from the previous funding round or a comparable transaction. Employment law does not protect the leaver — it really is a matter of contract — but agreements are usually written so that incapacity for work or even death is classified as a good leaver, so it wouldn’t be completely out of step with the general sense of justice. EXIT MECHANICS: drag along gives a sufficient majority the right to force the others to sell — typical thresholds two thirds from investors and half from founders; the justification: the VC made the investment as a financial investment with clear return expectations, whereas for a founder it may be a life’s work — this makes VCs sound greedy, but for them it is a business. Tag along is the counterweight, and drag terms usually stipulate the same terms and the same price for everyone, liquidation preferences taken into account. STACKING OF PREFERENCES: each round adds a new preference on top — first the C round gets theirs out, then B, then A, and at the very bottom are the founders and employee shareholders. MIETTINEN’S DEFENCE OF THE PROTECTIVE TERMS: if there were no protection and you put in a million for 20 per cent, and then a decision were taken in an empty company to distribute it all out — you’d get 200 grand back on your million and the others would get your 800 grand; that isn’t fair either. Both admit abuse is attempted (e.g. word soon after a round that the main owner’s portfolio needs lightening) — Finland is a small enough country that these things do get remembered. DILUTION AND THE OPTION POOL: fully diluted ownership accounts for options and option pools, and it is the figure that determines who gets what at exit (the VC takes e.g. 20 %, but the pool may be 10 %) — you have to keep your wits about you when you read those Excels. On why dilution is acceptable: is it better for the founder to own half a worthless company, or 10 per cent of a company worth 10 million. SHAREHOLDERS’ AGREEMENT VS. THE COMPANIES ACT (Jari Lauriala’s question): the board has a decision that would objectively be in the company’s interest, but a minority VC blocks it with a veto in the shareholders’ agreement — can the board override? Andersin: as far as I know these have never been tested in any court. The breakdown: a shareholders’ agreement binds the parties even where it conflicts with the Act (it is their commercial will), but does not override the Act’s mandatory provisions; and as to which are mandatory — there is no exhaustive list of that either; there are plenty of opinions, but there is no truth as such; the board must act in the company’s interest, on which everyone agrees. THE PRACTICAL WORKAROUND: they have one person appointed to the board, but the agreement provides that the veto rights are exercised by person B, who also works for the VC — the role is split in two, and the person on the board pursues the company’s interest. Andersin’s open counter-question: if the company’s interest overrides everything else, then we are watering down a large part of the shareholders’ agreement — is that then the parties’ will? POWERS OF ATTORNEY AND SANCTIONS (Lauriala’s second question): a power of attorney given in a drag-along situation is not watertight — they can be revoked, the same applying to a voting proxy, and it can be revoked right at the last moment. The answer is a contractual penalty: you don’t even look at whether damage arises — the shareholders’ agreement is breached, there is an automatic contractual penalty, intended to work as a deterrent. WHY MORE ISN’T KNOWN: disputes go to arbitration and stay confidential, so public knowledge accumulates slowly; Miettinen mentions that Aalto’s professor of finance Sami Torstila has gained access to these decisions (earn-outs, typical dispute paths) and proposes an episode on it. WHY ARBITRATION: in Miettinen’s view the court system is under-resourced and not equipped for commercial decisions, and parties also want confidentiality and speed; in the Anglo-Saxon world public courts are trusted, and in Delaware in particular the judiciary has specialised. SIDE THREAD: Miettinen sat on the working group that produced Finland’s separate act on the bondholders’ agent — the agent was given strong, irrevocable powers and qualified majorities the right to bind the minority; there was quite a bit of noise about that too, about whether this kind of front-man arrangement is fair. Andersin: the difference is scale — a bond may have hundreds or thousands of holders, a VC-backed company a few dozen, and then the majority is formed by money rather than by shares. MATURING CONTRACT PRACTICE: the seriesseed.fi documents have become established, and Miettinen compares them with those of ten years ago (“a completely different level of quality”). The reason for standardisation is economic: seed rounds run from a few hundred thousand to a million and cannot bear heavy transaction costs if lawyers drafted from scratch; and it gives the target company comfort — we know a hundred companies got money on these same terms last year, so maybe they’re good enough for us too. The documentation works at least as a good basis for an A round, depending on the investor’s protection needs; Miettinen mentions FiBAN‘s corresponding development at the angel and pre-seed level. US DOCUMENTS: Jyri Engeström pulls his deals onto Delaware documents, but that is not common — this is a Finnish limited company; even so, our practice does come from the Anglo-Saxon side, it has simply been localised years ago and stripped of what is felt unnecessary — we go lighter, but the frame is largely the same; development is also driven by foreign VC investors having found Finland. TWO CHANGES IN THE LAW. (1) Personnel share issue: if a startup issues shares to its employees and more than half of the personnel can participate, fair value is deemed to be a mathematical value clearly below commercial fair value — so at exit taxation shifts much more to the capital-income side than to earned income. The limitation: it works in early-stage companies, where subscription can be offered to almost the whole staff in one go; if the company already has 50 employees and wants to commit 10 new ones, the half threshold is not met. THE PROBLEM WITH OPTIONS: the difference between subscription price and fair value is taxed as earned income — that is such a big club that nobody dares touch options, whereas in the US they are a natural part of compensation; investors dilute options into the Excels anyway. (2) Non-compete: from next year it requires percentage-based compensation of base salary, which makes it a less attractive tool especially for startups and forces an assessment of who it really is worth applying to; Miettinen’s justification for the clause: the founding team leaves and sets up the same concept again — the tuition was paid with other people’s money. UNICORN OR ZEBRA: Andersin’s message to founders — it’s worth understanding the VC investor’s starting points; someone investing their own money can do whatever they like and is accountable to no one, but that is no longer the situation with a VC fund. Miettinen: the unicorn path demands fast, explosive scaling, because the winners have to cover the eighty per cent of loss-making investments — it may feel unfair that even a good performance isn’t enough. He proposes the zebra investor as an alternative, “a slightly calmer animal” not chasing a billion-euro valuation; Andersin: the same problem remains, because the first VC investor may be the first shareholder to bring in hard money — the founders’ work input has value, but it is harder to measure, it is entrepreneurial risk — and when a VC brings in a million and has a duty of care, it requires exactly these protective mechanisms. AN ANGEL IS A PARTIAL SOLUTION: angels come with gentler paperwork (“here’s some money, go run”), but there are not too many of them in Finland; and at Verto the documentation was of good quality — the problem was not there. LISTED COMPANIES: a listed company cannot have a shareholders’ agreement — all investors must be in the same boat, which removes the entire framework. FORMS OF EXIT: a shareholders’ agreement usually speaks simply of an “exit”, covering both a trade sale and a listing, and the exit clause gives the right to launch a process pursuing one or both as a dual track. The timing is driven by the fund’s life cycle: these VC funds are fund-structured, they have their own life cycle — they have to return the capital to their own investors within a certain time; the practical horizon is five or seven years, and the fund’s maximum is 10 + 2, beyond which almost nobody ever goes. THE PRIVATE-EQUITY YEAR: some EUR 1 billion was raised in Finland the previous year, and the amount is expected to grow this year.

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