Why venture capital and what does it mean for your start-up?
As a start-up, you have something special: an innovative idea with the potential to change a market or even disrupt an entire industry. You might already have a working prototype, a few initial paying customers, or media traction. But to become a truly serious player, you need more than vision and perseverance. You need to be able to scale—strengthen your team, further develop your technology, enter new markets, or finance an aggressive growth strategy. And that’s where venture capital (VC) comes in.
Venture capital is risk-bearing growth capital that enables you to take significant steps, faster than you could with your own resources or through traditional financing. It opens the door to acceleration—but also to partnership. Because a VC investor doesn’t just bring money; you also bring in someone with experience, a strategic network, industry knowledge, and often a clear vision for growth, governance, and exit.
That’s an opportunity, but also a responsibility. Venture capital is not a no-strings-attached loan or donation—it’s a business collaboration with clear expectations about returns, involvement, and decision-making. You’re not just sharing your shares, but also (partially) your control over the direction of your company. That’s why it’s crucial to structure this partnership properly from a legal standpoint right from the start.
From the very first conversation with an investor, it’s wise to be clear about your intentions, boundaries, and conditions. Who gets what rights? What will the ownership model look like after the investment? What happens if things don’t go according to plan—or go much better than expected? And what does the ideal exit scenario look like?
Clear legal agreements help manage expectations, prevent conflicts, and build a sustainable relationship between you as a founder and your future investors. This way, you jointly lay a solid foundation for your growth plans—with an eye for both opportunities and risks.
What documents can you expect during negotiations?
When you start talking to an investor, a process begins that takes shape legally step by step. This collaboration isn’t finalised all at once but develops in stages—and each stage has its own documents. It’s important for you as a founder to understand what you’re signing, when you’re signing it, and why it matters. Below, we’ll go through the key documents that you as a start-up will encounter sooner or later:
Term Sheet
The term sheet is usually the first official document you receive from the investor. Think of it as the blueprint for the deal. It outlines the main points: how much money is being invested, at what valuation of your company, what type of shares the investor receives, and what rights they acquire. This includes things like veto rights, information rights, or the right to a board seat.
Although a term sheet is often legally non-binding, it forms the basis for all subsequent steps. What’s in it largely determines what the rest of the investment will look like. So don’t be tempted to “quickly skim” it. This is the moment to consult with a lawyer, because what sounds general now will soon be legally binding.
Investment Agreement
The investment agreement makes the arrangements from the term sheet concrete and binding. This is the legal contract that officially governs the investment. It specifies, among other things, when the money will actually be transferred, whether the investment will be made in one go or in stages (tranches)—for example, depending on achieving certain goals or KPIs.
This document also often contains warranties that you as a founder must provide. For example: that there are no legal claims against your company, that your technology is truly yours, and that the cap table is correct. Clauses are also included about what happens in case of conflicts, delays, or force majeure. This is a crucial document: it forms the legal backbone of the deal.
Shareholders’ Agreement
The shareholders’ agreement is perhaps the most important document in the long run. It sets out the rules of the game for the collaboration between you, your co-founders, and the investor. What can you decide on your own, and what requires consent? How are votes cast? What happens if one of the founders leaves the company—do they take shares with them? Under what conditions?
Exit scenarios are also regulated here: if an investor wants to sell their shares, can you join in (tag-along) or are you even obliged to sell with them (drag-along)? A good SHA prevents confusion, conflicts, and ensures a level playing field.
Amendment of the Articles of Association
Many investments require your articles of association—the official “rules” of your private limited company (BV)—to be amended. For example, to introduce preferred shares, which investors often demand. These are shares that give priority in profit distributions or in the event of a company sale. Other control rights can also be laid down in the articles.
Amending the articles is done through a notary and must be registered with the Chamber of Commerce (Kamer van Koophandel). Make sure this is well-aligned with the agreements in the SHA and the investment agreement.
ESOP (Employee Stock Option Plan)
Attracting and retaining talent is essential in a start-up. Many investors, therefore, want you to set up an ESOP (Employee Stock Option Plan): a scheme that gives your employees the chance to become co-owners (over time) through share options.
This must be set up carefully from a legal perspective, especially if you already have or are getting investors. The SHA often includes agreements on what percentage of shares is reserved for the ESOP and under what conditions these options are granted. A well-designed ESOP gives you room to reward your team without compromising your negotiating position in the next investment round.
In short, every step in the investment process has its own documentation. Get good guidance, make sure you understand what you’re signing, and protect your role as a founder. Clear agreements are not just in the investor’s interest—they also protect your vision and position within the company you’ve built.
What should you pay attention to legally as a founder?
As a founder, you primarily want to do one thing: build. Your product, your team, your customers. You live in the future and think in solutions. But as soon as serious money is on the table—from a venture capital investor or another external party—it suddenly becomes time to grow up legally. Because with capital comes responsibility. And with responsibility come contracts, voting rights, preferred shares, and exit clauses.
Most pitfalls don’t arise from ill will, but from ignorance. That’s why it’s crucial for you as a founder to understand what to look out for before you sign. Here are the four most important legal points you can’t afford to miss:
Control and Voting Rights
It’s perfectly normal for an investor to want a say in your company—after all, they are putting money and reputation on the line. But how much control do you give away? And over which decisions? Think about new financing rounds, hiring a C-level executive like a CFO, amending the articles of association, or even selling the company.
Some investors want veto rights on important decisions. That doesn’t have to be a problem, but you need to know what you’re giving up. The danger is that as a founder, you’re still the face of the company on the outside, but you have little room to manoeuvre internally.
Tip: Specify which decisions you can make independently, and which require the consent of the investor(s). Ensure that you as a founder or the founding team retain sufficient influence—especially in the early stage of your company.
Anti-Dilution
In future investment rounds, new shares are often issued. That makes sense, as money doesn’t come for free. But what does that mean for your percentage as a founder?
Many investors want to protect themselves from dilution through anti-dilution clauses. This means their stake is adjusted if future shares are issued at a lower valuation (a down round). Fine, but this can lead to you as a founder being diluted faster than you’d like.
Moreover, VCs want an ESOP (Employee Stock Option Pool) to be reserved before their investment—often 10–15% of the share capital. If you pay for that out of your existing shares, your stake goes down even further.
Tip: Negotiate a fair distribution of dilution. Ask for founder-friendly arrangements and have your stake calculated after the investment and after the next round(s). Transparency now prevents frustration later.
Exit Agreements
What happens if a shareholder wants to exit? Or if a takeover candidate shows up?
The legal documents usually include so-called drag-along and tag-along provisions. Drag-along means that if a majority of shareholders want to sell, you are obliged to participate—even if you don’t agree. Tag-along means you have the right to sell along with a larger party if they do.
These clauses can be crucial in the event of an exit or merger. They can protect you, but also limit you. Especially if you have a clear vision of how and when you want to sell, it’s important to discuss these agreements beforehand.
Tip: Have these provisions explained legally and discuss them with your co-founders. Go through scenarios: what if an investor wants to sell after 3 years, but you want to build for another 5?
Due Diligence: Be Prepared for a Thorough Review
Before an investor deposits their money, they want to know what they’re buying. This means your company will be thoroughly vetted—a process called due diligence. Everything is examined: your incorporation documents, shareholder structure, IP rights, customer contracts, employment agreements, tax returns, etc.
If things are missing, incorrect, or unclear here, it can delay, worsen, or even scupper the deal. Whether you’re talking to an angel investor or a VC fund: make sure your house is in order.
Tip: Set up a digital dataroom in time with all relevant documents. Ensure a correct and up-to-date cap table, check that your IP is properly registered (e.g., in software development), and work with a lawyer who knows what investors look for.
In short: be as sharp legally as you are in your pitch
The legal side of venture capital is not a sideshow. It determines how much control you keep, how much you ultimately earn in an exit, and how you deal with setbacks or conflicts.
By asking the right questions from the start and getting good guidance, you protect yourself—and thereby your team, your vision, and the company you’ve worked so hard to build.
So don’t be overwhelmed by legal terms or thick documents. You don’t have to be a lawyer—but you do need to know when you need one.
Tips for good preparation
A successful investment round doesn’t start at the negotiating table—it starts with preparation. The better you as a founder do your homework, the smoother the process will be, and the stronger your position during the talks. Here are three essential tips to confidently and controllably enter your venture capital journey:
Work with a legal advisor who has VC experience
Not every lawyer is suited for this work. Venture capital transactions have their own logic, customs, and pitfalls. This is not a standard private company incorporation or freelance contract. It’s about complex agreements on share structures, veto rights, governance, exit scenarios, and tax optimization—with potentially major consequences for the future of your company.
A legal advisor with experience in VC deals knows exactly what’s customary, what you can ask for (or refuse), and which fine print can have a major impact later on. They can help you understand not just *what* is in a contract, but more importantly, *why* it’s important—and what your negotiating room is.
So don’t choose the cheapest lawyer, but the one who understands and defends your interests as a founder.
Ensure structure: set up a dataroom
Investors love clarity and order. Nothing is more off-putting than messy documents, missing contracts, or a cap table that’s “more or less correct.”
Make sure you have everything organized in a central digital folder or dataroom. Think of:
- The articles of association of your company
– An up-to-date and detailed cap table (who has what shares/options?)
– Chamber of Commerce excerpts and deed of incorporation
– Contracts with employees and freelancers
– Intellectual property (e.g., trademark registration, software rights, licenses)
– Ongoing agreements with customers or partners
– Financial overviews, annual accounts, VAT returns
A well-stocked dataroom shows that you have a grip on your business—and it prevents delays during due diligence.
Think ahead: build today for the next round
The agreements you make now can limit or strengthen you later. So ask yourself:
- What happens in the next investment round?
– Will new investors also get preferred rights, and how does that relate to the current agreements?
– Do I as a founder keep enough room to reward my team with options?
– What if we want to merge, sell, or expand internationally within two years?
Many founders enthusiastically sign their first VC deal, only to find out later that they’re in a legal cage—with too many veto rights, dilution clauses, or complicated governance.
Therefore, have your legal advisor look not only at the current deal but also at its future-proofness. Smart structures ensure that you can keep building.
So, preparation is power
An investor not only wants to know *what* you’re building, but also *how solidly* you’ve built it. By being legally sharp, having your documentation in order, and thinking strategically ahead, you increase your effectiveness—and show that you’re ready for serious growth.
Whether you’re raising €250,000 or €5 million: you lay the foundation with structured preparation.
Policy frameworks and practical examples: what’s happening behind the scenes?
The Dutch investment climate is fundamentally positive and stimulating for venture capital, but that doesn’t mean it’s without obligations. Behind the scenes, there’s a complex web of regulations, supervision, and tax policy that determines how investors can operate—and thus how your investment is legally and financially structured.
Larger investors, in particular, such as venture capital funds and institutional parties, must adhere to European regulations. Think of the AIFM Directive (Alternative Investment Fund Managers) or the UCITS Directive (Undertakings for Collective Investment in Transferable Securities). These directives are intended to protect investors and require, among other things:
- Transparency about the fund’s structure
- Sound risk management
- Clear information provision to investors
What does that mean for you as a founder? Simply put: if you partner with a regulated fund, you can count on a certain degree of control, professionalism, and compliance being present. But it also means that the investment is sometimes accompanied by more formalities, documentation requirements, and demands on your internal processes.
Jurisprudence: where does the court draw the line?
Dutch case law has repeatedly made it clear that not every investment fund automatically qualifies as an investment institution. This is relevant because the qualification determines whether and what kind of supervision applies (e.g., from the AFM or De Nederlandsche Bank).
For example, there are rulings in which a fund that presented itself as a stimulus fund—with the aim of promoting innovation or regional growth—fell outside of strict supervision, because it was non-profit and had limited commercial motives. This can be to your advantage, as such a fund often relies less on control and influence, and leaves more room for the founder.
Fiscal incentives from the government
On the fiscal front, the Dutch government also tries to keep venture capital attractive. This is done through a number of targeted measures:
- Flow-through obligations for investment vehicles: Funds that (quickly) pass on their profits to shareholders can use favorable tax regimes, such as the 0% corporate tax rate. This makes it more attractive for investors to contribute money.
- Start-up facilities: Think of tax exemptions or lower charges for share options, which can make ESOPs more fiscally advantageous to set up—important for your team.
- Innovation Box and WBSO: Although not specific to VC, these schemes create an attractive climate for tech- and R&D-driven companies. And that attracts investors.
Why this is relevant to you as a founder
You don’t need to be a lawyer or tax specialist to attract venture capital. But some knowledge of the policy landscape helps you to better understand:
- What your investor is and isn’t allowed to do
- Why certain contract terms are required
- How you can get tax advantages from your structure
And just as importantly: it helps you to appear professional and well-informed in conversations with investors. Because those who know the rules of the game, play stronger.
Tip: Ask your lawyer or advisor not only about the contracts, but also about the type of fund you’re dealing with. A stimulus fund with a social mission often sets very different conditions than a commercial VC fund with strict reporting requirements.
Finally: protecting your interests as a founder
Raising an investment is a huge achievement. It’s proof that your vision, product, and team are taken seriously by the market. It’s often also the moment when you first truly feel: we’re going to build something big. But let’s be honest—an investment is not just a stepping stone to growth, it’s also a crossroads. From this moment on, you change the rules of the game for your company.
You raise capital, and often valuable knowledge, a network, and strategic guidance. But in return, you inevitably give something up: a part of your control, a part of future profits, and in some cases, a piece of your independence.
That doesn’t have to be a problem at all—as long as you’re aware of what you’re giving away, why you’re doing it, and most importantly: that you lay down the agreements properly and in a balanced way. Because no matter how inspiring and positive the relationship with an investor starts, it’s the contracts that determine how that relationship develops when things get tough. Or when the company grows explosively. Or when you want to take a different course than your investor.
Therefore, always get guidance from a legal advisor who puts your interests as a founder first. Someone who understands that you need protection not only in a legal sense but also in an entrepreneurial sense—so that you keep the room to lead your company as you envision it. And someone who knows what is market standard, so you can sit at the negotiating table with confidence and tactics.
Because there are plenty of examples of founders who were still CEO on paper, but in practice could barely make decisions without the approval of an investment committee. Or who only realized at the exit how much of their own company they had given up—without ever having thought about it strategically.
In short, an investment is not a final destination, but a new starting point. Protect what you’ve built, guard your mission, and make sure your legal foundation is at least as solid as your product. That’s how you build not just for growth, but also for control.
