Capital increase for startups

Entrepreneurs who create startups must know that over time, the company can do well and have good prospects and, therefore, be attractive to new investors. One of the ways to bring in new investors is by increasing capital, which can be done in two ways, according to article 295 of the Law of Capital Companies:

• Increasing the number of shares or participations in the company.
• Increasing the value of existing shares or participations.

The most common case is the first, so let’s see what should be considered and how to do it.

The capital increase and the entry of new partners

The entry of new partners in startups can mean an important change since, depending on how it is done, the new partners could acquire decision-making power over the company, to the detriment of its founders.

The aspects to take into account about the capital increase are the following:

• Approval of the general meeting. The capital increase implies the modification of the statutes of the startup, so the general meeting of the company must approve it.
• Necessary majorities. In many cases, the majorities necessary to approve the capital increase exceed 51%, so you will have to read the statutes carefully to see what they regulate.
• Decide the value of the new shares or participations. First of all, shareholders must decide if the new shares or participations will be issued with the value that the initial shares or participations had at the time. Or if a premium is going to be added.
• Preferential subscription right. In some cases, partners may have a preemptive subscription right if a capital increase is carried out, although the capital increase can be agreed upon without that right. .
• Beware of loss of control. The entry of new investors may mean that the founding partners lose the power to control the company, so they must be very clear about the conditions of the expansion.
• Types of expansion. Several can be distinguished types of capital increase, which are the following:
  • Money. A cash contribution is made. It is the most common assumption.
  • Non-monetary. An asset is provided in exchange for shares.
  • For compensation of credits. The company offers to exchange an amount it owes for shares or participations.
  • Released. When it is charged to the company’s reserves.
  • At par. The price of the share or participation will be the same as the initial one.
  • Above par. The stock will be at a premium.

To avoid conflicts in cases of capital increase of startups, it is common that at the time of incorporation a partners’ agreement that regulates the agreements related to this situation: premium, preferential subscription right, control of the company, etc.

Financing of start-ups

One of the main problems that startups face is obtaining financing to create or promote a project. Bank financing has been difficult to obtain throughout the years of economic crisis, and today, it is still difficult to obtain. For this reason, startups have had to devise new forms of financing and have resorted to so-called financing rounds.

Financing rounds are processes through which companies raise capital from new investors>. It may be the capital necessary to create the company or an increase in existing capital.

The most important thing in financing rounds is that you look for investors who adapt to your startup’s needs and are interested in the area in which you will develop your activity.