Legal Framework for Venture Capital and Startups in Chile

Venture capital is professional investment in early-stage or growth-stage technology companies, in exchange for an equity stake. In Chile it operates through funds managed by AGFs, private investment funds (FIP) regulated under Law 20.712, investment companies and foreign vehicles investing directly into Chilean startups. The legal structure of each round depends on the investor vehicle, the stage of the company and the projected exit jurisdiction.

The SAFE (Simple Agreement for Future Equity) is a convertible investment instrument that defers valuation of the startup until a future round, when the investor converts the contribution into shares. It is typically used in pre-seed and seed rounds, when a firm valuation is not yet feasible. Its adoption in Chile is growing, but requires careful adaptation to local law: the Y Combinator template assumes U.S. law, and its replication in Chilean law requires adjustments on conversion, antidilution and investor rights.

Essential clauses are: pre-money and post-money valuation, investment amount and round percentage; liquidation preference (1x non-participating is market standard); antidilution rights (broad-based weighted average is standard); board composition and voting rights; drag-along and tag-along clauses; share transfer restrictions; founder vesting; and representations and warranties. Negotiation of each reflects the relative strength of the parties and the market moment.

Legal due diligence is the thorough review the investor performs on the company before investing: corporate (corporate structure, capital, books, shareholders), contracts (key clients, suppliers, distribution), intellectual property (registrations, licenses, open-source dependencies), labor (contracts, benefits, contingencies), tax (compliance, contingencies), regulatory (sector authorizations) and litigation. Legal advisory to the startup helps anticipate findings, organize the dataroom and negotiate the contractual consequences of identified risks.

When the investee startup provides technology-enabled financial services, Law 21.521 (Fintech Law) defines the applicable regulatory perimeter: crowdfunding platforms, credit advisory, alternative transaction systems, open finance, crypto-asset custody. Compliance with the Fintech regime affects valuation (regulated is worth more), round conditions (investments contingent on obtaining authorization) and exit structure. Anguita Osorio integrates the VC team with the Fintech Law practice when the transaction requires it.

Founder vesting is the contractual mechanism that defers the consolidation of each founding shareholder’s equity over time, conditioned on continued active service. The market-standard structure is a four-year total period with a one-year cliff: the first 25% consolidates on the first anniversary, and the remainder vests monthly through the fourth year. Investors typically require vesting as a condition of the round; in Chilean law it is implemented through shareholders’ agreements, repurchase options and buy-back clauses on early departure.

The shareholders’ agreement regulates the relationship between startup shareholders beyond what the corporate bylaws cover. Essential matters: governance (board composition and powers, reserved matters, qualified majorities), share transfers (restrictions, rights of first offer and refusal, tag-along and drag-along), founder vesting and consequences of early departure, non-compete and non-solicitation, intellectual property and future contributions, dispute resolution mechanisms. Poor drafting in these areas is the leading source of inter-shareholder litigation at the growth stage.