Legal Due Diligence Readiness for Dutch Startups

A Dutch startup is ready for legal due diligence when its corporate records, cap table, IP position and existing investor rights can be verified without reconstructing the company’s history during the financing process.

For a Series A or other institutional financing, I would start the legal preparation before investor counsel opens the data room.

The first workstream is usually corporate. The shareholder register, notarial deeds, articles of association, shareholder resolutions and fully diluted cap table should show the same ownership structure. Convertible loans, warrants, options and other rights to future equity need to be included as well.

That sounds basic. In an early-stage company, several financing rounds and informal arrangements may have accumulated before the first institutional investor comes in. Resolving discrepancies at that stage is much easier than explaining them halfway through due diligence.

This issue forms part of the broader Dutch financing and governance framework discussed in my Venture Capital Insights: Dutch BV Financing, Investor Rights and Growth Company Governance. For the broader preparation of a company for a financing or exit, see Preparing a Dutch Startup for Series A or Exit.

Start with the corporate record

When I review a Dutch startup before a financing round, I want to be able to trace every material change in the capitalization.

A share issue should be supported by the relevant notarial deed and corporate approvals. Transfers should appear in the shareholder register. Convertible instruments and warrants should reconcile with the fully diluted cap table. Existing preference rights, side letters and option arrangements should be identifiable from the documents rather than from separate explanations by the founders.

If the cap table says something different from the legal record, I would resolve that before it goes into investor diligence.

The separate Cap Table Adjustments in Dutch Startups and Scale-ups insight deals with dilution, share classes and financing economics in more detail. For diligence readiness, the immediate objective is simpler: investor counsel must be able to establish who owns what and which instruments can still change that position.

Establish the IP chain before it becomes a diligence issue

For software, AI and deeptech companies, IP ownership tends to move up the diligence list quickly.

I would not rely on a general statement that the company owns its technology. The documents should show how the relevant rights ended up in the Dutch BV.

That often requires looking beyond current employment agreements. Founders may have developed technology before incorporation. Freelancers or development agencies may have contributed code. Universities, research institutions or commercial partners may have been involved at an earlier stage.

Where an assignment is missing or unclear, it is usually preferable to deal with it before the financing process becomes time-sensitive.

The same applies to licences and material third-party technology. Investor counsel needs enough information to understand whether the business can continue using the technology on which its investment case depends.

Clean up employee and advisor equity

Early-stage companies frequently have arrangements that were commercially clear at the time and legally less precise.

An employee may have been promised “1%”. An advisor may expect shares following a financing round. A management presentation may refer to an option pool that has not yet been fully implemented.

Those arrangements need to be converted into a legal position before an investor relies on the fully diluted cap table.

I would identify outstanding promises, establish whether they relate to shares, options, STAK certificates, SARs or another economic entitlement, and check the relevant approvals and documentation.

The issue is rarely the existence of employee participation itself. Uncertainty over the number of rights, vesting, exercise or entitlement is what slows down a financing.

Keep the contract review focused on the investment case

A VC data room does not need every ordinary-course document the company has ever signed.

I would focus the legal review on agreements that can affect the company’s value, freedom to operate or ability to complete the financing. Depending on the business, that may include material customer agreements, strategic partnerships, licences, financing documents, exclusivity arrangements and contracts containing consent or termination rights triggered by a change in ownership or control.

For companies relying on grants or subsidies, the underlying conditions also need to be understood. The relevant point is whether the financing, corporate restructuring or future use of IP affects existing obligations.

A large unstructured contract folder is less useful than a targeted set of documents that allows the investor to understand the material dependencies of the business.

Map existing investor rights before agreeing the new round

The new lead investor enters an existing corporate structure.

Earlier shareholders may already have pre-emption rights, pro rata rights, reserved matters or consent rights. A side letter may give one investor additional protection. Existing documentation may require approval for the creation of a new share class, amendment of the articles or expansion of the employee pool.

I would map those rights before the new financing terms are finalized.

Otherwise a term sheet may assume that the company can issue the agreed Series A shares on closing while the existing shareholder documentation still requires approvals, waivers or other steps that have not been factored into the process.

For international lead counsel, this is often one of the most useful parts of the Dutch corporate workstream: identify the existing rights early and turn them into a clear approvals and closing list.

Decide what happens to each material finding

A company does not need a perfect legal history before it can raise capital. It does need a plan for the issues that matter.

A missing IP assignment may be repaired before closing. An old corporate irregularity may require ratification or another remedial step. A material contract issue may need to be disclosed. Certain matters are better dealt with through a condition precedent, covenant or specific protection in the investment agreement.

I would make that decision issue by issue. The diligence exercise should therefore feed directly into the financing documentation. The separate insight on Warranties and Due Diligence in Dutch VC Transactions addresses that next step: once an issue has been identified, the documents need to allocate the resulting risk.

Practical conclusion

Before investor diligence starts, I would want the corporate record and cap table reconciled, the IP chain evidenced, outstanding equity promises documented and existing investor approvals mapped.

That gives investor counsel a reliable starting point and leaves the transaction team free to spend time on the findings that actually affect the financing.

If an issue still needs to be addressed, it should already be clear whether the solution is remediation before closing, disclosure or protection in the investment documentation.

FAQ

When should a Dutch startup prepare its legal data room?

Preferably before detailed investor diligence begins. That leaves time to correct documentation without making the repair part of the closing timetable.

What corporate records should be checked first?

The articles of association, shareholder register, relevant notarial deeds, shareholder and board resolutions, existing shareholders’ agreements and outstanding equity or financing instruments.

Should informal equity promises be included?

Yes. Any promise that may result in shares or another economic entitlement should be assessed before an investor relies on the fully diluted cap table.

Does every diligence issue need to be resolved before closing?

No. The appropriate response depends on the issue. Remediation, disclosure, a condition precedent, covenant or contractual risk allocation may each be appropriate.

About Dirk de Waard

Dirk de Waard is a Dutch corporate, M&A and venture capital lawyer and partner at Venture Lawyers in Amsterdam. He advises investors, founders and growth companies on Dutch VC financings, legal due diligence and Dutch BV implementation.

Dutch legal due diligence for an international financing

For international investors and lead counsel, Dirk can take responsibility for the Dutch corporate due diligence workstream, identify remediation and approval items and carry the findings into the investment documentation and closing process.

See also the Dutch Venture Capital practice or contact Dirk at dirk.dewaard@viottalaw.com.