What is Venture Capital (VC)?
According to Abbreviationfinder.org, Venture Capital (VC) is a type of investment fund focused on growth capital for medium-sized companies that already have a client portfolio and revenue, but that still need to make a leap in growth.
It is different from Private Equity (PE) with regard to the stage of development of the company to receive the contribution. If companies that are still in the structuring phase are importing into the VC fund, the EP focuses on those already developed but with the potential for expansion and IPO, among other objectives. But the two modalities have money coming from third parties who invested in the fund and who now have a stake in the control and management of the company.
In addition to venture capital and private equity, there are still other types of entrepreneurial capital for companies in even more initial stages than those of interest to these funds.
Seeds capital, or seed capital, is another type of fund in which a legal entity also has a stake in companies, but in those that are in the embryonic phase, or are sometimes just a good idea.
And the angel investor is an individual interested in leveraging that business as a partner, with intellectual and financial capital, but is not part of an investment fund.
Venture capitalist is the name given to the venture capital fund investor. In translation, he would be the venture capitalist.
What is vesting?
Vesting is a contractual instrument popularized by startups that provides for a progressive acquisition of rights over the business.
In practice, it seeks to ensure that the participation of founders and employees in the company’s actions is compatible with the real involvement they had in its growth and success.
There is no word that translates this term exactly into Portuguese, but we can understand it as the gradual acquisition of a right. The period in which this right is being acquired is called the vesting period.
Why is vesting important?
Imagine that two partners created a startup in which each owns 50% of the business. While the company was still in an embryonic stage, the partners fought and only one of them continued to bet on the business.
After a while, the startup grew to be worth a lot of money. Without a vesting contract, the partner who left the business could charge for his 50% even without having collaborated in anything for the success of the venture.
Another example is in the case of hiring an experienced employee. In general, startups cannot compete with big companies in terms of salaries, so they tend to promise a part of society to attract this type of talent.
Let’s say the company offered a 5% stake in the business, which is still starting, to attract a good employee. This employee, however, stayed only 1 month in the job and decided to leave.
If there is no vesting clause, that employee could also claim that 5% after the company took off, even though his participation in this growth was nil.
How does vesting work?
Vesting associates the right to a share of shares with a period, usually from 2 to 5 years. That is, in the case of an employee who has been promised participation in the startup, the transfer of these shares to him is done gradually.
He will only be entitled to the totality of the promised participation after the vesting period established in the contract has ended. Therefore, if a 4-year vesting period and a 5% stake in the company’s shares were agreed, after one year, that employee would not have the 5%, but 1.25%.
The same type of relationship between permanence in the business and participation in the actions can also be established between the founding partners at the time of the creation of the company, thus ensuring a balance between the time of involvement of each one and the right to return after the success of the contract.
Vesting contracts can be complemented by a cliff clause, which establishes a minimum collaboration time, usually one year, so that the right to share shares is valid.
In this example, if the employee who has been promised participation in the company leaves the company before fulfilling this grace period, he will be giving up his right to a share in the company.
The employment relationship occurs when an individual provides services to an employer who hires him and remunerates him with a salary.
This characteristic is present in art. 3 of CLT (Consolidation of Labor Laws), defining the employment relationship as:
“Any individual who provides services of a non-casual nature to an employer, under his dependence and for a salary, is considered an employee.”
Therefore, this is the part of the law where the figure of employees in Brazil is characterized, that is, a worker who is subordinate to his job and an employee.
Employment bond characteristics
In order to be characterized as an employee, certain requirements must be kept in mind, in addition to the fact that this bond must meet other legal requirements, such as FGTS payment, payment of 13th salary, among others.
Below we list the requirements for the employment relationship to actually exist.
It relates the continuity of the employment contract and the provision of the service with the usual, that is, with a work routine that the employee has in his function, on any day of the week.
A worker is linked to an employer for carrying out activities according to the requirements of place, form, manner and time defined by the employer.
It concerns wages since there is an exchange between the two parties: the worker with his workforce and the employer with the remuneration.
The labor law concerns individuals who are employed, unlike the formation of business companies, for example, where the figure of the legal person is formed.