5 Best Reasons To Hate Lawyers

Written by Kristian Holte, start-up lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“Lawyers are the only persons for whom ignorance of the law is not punished”

J. Bentham


Lawyers are skilled liers.

“I can do that”. “I have experience with this”.

“References? Portfolio of past work? Sorry, that’s all confidential”.

Lawyers lie about a numbers of things to sell themselves. But only when they know they cannot get caught. Lawyers know how to use their built-in authority as a secret weapon to avoid getting called out.

Lawyers especially lie about their experience with particular cases and areas of law.

Lawyers can throw out a legal buzzword or two. Mix it up with facts from other cases. It’s hard to tell whether it’s b*llshit . After all, they’re wearing suit and tie.

Only experienced business people or other professionals can ever tell the truth.


Lawyers don’t know how to prioritize.

To lawyers, all legal issues must be solved. Perfectly. As a consequence, they attribute equal importance to all of them. Even though the actual importance vary greatly.

This frustrates clients endlessly.

Lawyers also don’t know when to prioritize other issues than law. Sometimes relationships, psychology, speed or closing the deal is simply more important than a beautiful legal solution.

Lawyers see this as a threat to their livelihood.


In the following order, lawyers care about:

  • not making mistakes
  • protecting themselves
  • intellectual stimulation
  • what other lawyers think of them
  • getting paid
  • how to get you to come back and pay them more

Notice that you and your business is not in there.

Lawyers haven’t got time to care about that.

Time is money, you know.


Good luck trying. But you rarely get a lawyer to give you a fixed price without loop holes.

It’s not hard to understand why.

Because working on a fixed fee requires:

  • Solid experience with that specific type of project
  • Competence
  • Confidence
  • Project management skills
  • Accepting that all cases are not equally profitable
  • Giving up on the institutional billable hour

Most lawyers don’t meet these requirements.

So they simply start working. Eventually they invoice you. Tears will ensue.


Lawyers despise things that don’t come with a guaranteed and predictable successful outcome.

This includes “entrepreneurship”, “art”, “sales”, “emotions” and the like.

Their entire life lawyers have worked hard doing what others told them to do. In school, at university and when becoming a lawyer. Now they demand payback.

To be honest, they think you’re a bit silly doing “that thing of yours”.

If you’re successful, they want your legal work. If you fail, they will ridicule you behind your back.

Written by Kristian Holte, start-up lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

5 Best Reasons To Hate Lawyers

Which Lawyer Not To Choose

Written by Kristian Holte, technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“A business is your personal utopia, where everything is how it should be”

D. Sivers

Charlie Munger taught me that sometimes it helps to approach a problem from an angle of inversion.

This means that you focus on what not to do. This is helpful when you don’t know what to do, because you narrow your options by eliminating undesirable ones.

I can say a lot about how to choose the right lawyer. Instead, let me tell you something about which lawyer not to choose.


Start-up founders looking to raise money from investors tend to focus on economics at the expense of control.

Examples include excessive efforts to:

  • Maximize the valuation of the company
  • Eliminate “crucial” terms such as liquidation preferences and anti-dilution
  • Negotiate the hell out of an option pool

These are important terms, indeed. Because they are important, control is overlooked.

I hold control extremely dear. I’m obsessed not to loose it. I might choose to give some away, but I insist on knowing when I do it.

Examples, where start-up founders tend not to give control enough thought:

  • Investor gets broad veto-rights to block decisions
  • Investor gets the right to force certain decisions through
  • Investor gets a right be appoint board members indefinitely
  • Investor’s lawyer is chosen as the company’s lawyer

Let’s talk about the last point.

It seems so innocent and straight-forward. Investor knows this lawyer, vouches for him and the lawyer reduces the fee for the initial work.

Let’s go, right?

Not if you like to run your own business.


There are a number of ways of using a lawyer to manipulate. Read about some of them here. I chose the word “manipulate” carefully. It means that the one getting manipulated doesn’t realize it.

You set yourself up for manipulation by choosing investor’s lawyer. Or the lawyer of anybody else whose interests might conflict with yours.

Any skilled and well-regarded lawyer possesses an armor of authority. It’s hard to penetrate.

“I suggest this”.

“Let’s do it like this”.

“I recommend that we wait with this”.

“It’s urgent that we do this”.

It will be impossible for you to argue against this. If you see it coming at all.

Investor’s lawyer will never acknowledge this, but when pushes comes to shove, he owes his allegiance to investor. I have experienced how serious the consequences can be.

Remember, your business is your personal utopia. For once, you’re the king. Don’t rob yourself of this rare opportunity.

Written by Kristian Holte, technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)


Which Lawyer Not To Choose

5 Highly Underrated Ways Of Using A Lawyer

Written by Kristian Holte, technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“All trends are overrated”

P. Thiel

A lot of CEOs miss out on lucrative ways to use their lawyer. They don’t know that the right lawyer is a potent tool. Fact is that lawyers have carried out hundreds of years of stealth marketing globally. Learn to use this to your advantage.

In a technology-centric world with a primary focus on substance, lawyers are ascribed only marginal value, if any. It may be that lawyers were overvalued in a past process-centric world. I feel, though, that the pendulum has swung too heavily towards the “marginal value” perception.

CEOs generally underestimate the following ways of using a lawyer:


When two sides negotiate it’s often hard to know what the other side considers reasonable. When you’re doing a deal from scratch, at first, the territory seems wide open. This is even the case with the more standardized deal types or when doing deals with somebody you’ve done deals with before.

So you have to go through a phase where you test the waters to ultimately secure the best deal for yourself. At the same time, though, you don’t want to seem unreasonable and risk losing everything. So: how do you avoid seeming unreasonable when you don’t know that the other side thinks?

One way is to use your lawyer as a hedge towards unreasonableness. You agree with your lawyer on which terms to propose to the other side. Then, if the other side gets offended, you basically “blame it on your lawyer”. “Ah, my lawyer must have put that in without telling me. Probably used a template”.

This works. You’re not to blame, your lawyer is. Even though the lawyer was yours. Sometimes, the other side perfectly knows what’s going on. But even in these cases, it’s a way for everybody to save face and continue the negotiations.


The question what’s “standard” or “common practice” often comes up.

Sometimes there is a common practice. Sometime there’s not. I put “authority” in quotation marks because it is often highly debatable who decides if there’s a common practice and what the content would be.

More often than people expect, the word of the lawyer carries a lot of weight. Especially if that lawyer is known for doing that particular type of work. “Deals of this kind are usually done in X way because of Y.” How do you argue against that? It is indeed possible, but not everybody knows how to do it. This means that you can often times take the other side by surprise without the other side ever knowing.

It takes courage or experience to speak up against an authority. People are afraid of seeming stupid for not knowing what they should already know. Even other lawyers.

Use that to your advantage.


By “authority-based” industries I think of traditionally conservative and heavily regulated areas such as banking, finance, insurance and real estate.

If you’re not already a well-established company with a 50-year corporate history, you need to convince your surroundings that you can be trusted. This is especially true if your team is young and trying to challenge incumbents or doing business with them. To achieve this, don’t estimate how your company can borrow the authority of lawyer by putting one on your side.

You can do this in difference ways: as a board member, advisor, investor or consultant.

Focus on the external credibility that a lawyer may give your company.


I’m surprised how little my clients used to come to me for introductions. Not until I actively made myself available, did my clients generally use me in this way .

When you think about it, lawyers are often very well-connected. They have personal relationships with a number of decisions makers in a substantial number of companies. Lawyers have a duty of confidentiality, but often they can preserve this and help you at the same time.

How I help my clients:

  • Introductions to potential investors and acquirers
  • Introductions to potential customers
  • Introductions to potential business partners


Some people complicate to profit. Another tactic is complicating to destroy. When is this useful?

Let’s say you’re negotiating with one party and you have come pretty far. Suddenly, another party shows up with a better deal for you. Now, you might feel that you can’t terminate the negotiations with the first party openly.

A way to tank the deal is to complicate matters. Lawyers are experts at this. Most of the times it’s counter-productive. However, in this case it’s useful to you. Have your lawyer make a number of complicated legal claims and the deal will eventually die. Of course, it wasn’t your fault.

“We had to comply with the law”.

Written by Kristian Holte, technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

5 Highly Underrated Ways Of Using A Lawyer

The Ultimate Founders’ Guide To Convertible Notes In Denmark

Written by Kristian Holte, technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“It’s a little bit like riding a convertible”

W. Tompkins

I’m writing this post due to popular demand.

Convertible notes are possibly overrated these days. They are not the holy grail of start-up financing. Still, they are useful in the right context.

Convertible notes may seem a bit counterintuitive until you understand how the mechanics work.

There’s a lot of underlying detail. In the following I have boiled it down the essence from a founder perspective:

#1 – Debt vs. equity

A convertible note is debt. This means that investor lends your company the investment amount. By doing so, investor does not become a shareholder in your company. Since investor is not a shareholder, the convertible note does not automatically give investor shareholder control over your company. Investor doesn’t automatically become a board member either.

So when does investor become a shareholder?

This happens when the debt is converted to shares. In this process, the debt “disappears” and investor gets to own a part of your company in exchange. Now investor has the control that comes along with being a shareholder. However, investor still doesn’t automatically become a board member.

#2 – Conversion price

When investor converts the debt into shares the following question arises:

How large a percentage of the company does investor now own?

The answer depends on two factors:

(1) The investment amount

(2) The conversion price

Let’s assume the following:

  • The investment amount is DKK 5 million
  • The conversion price is  DKK 1 per share
  • The company has DKK 45 million shares before conversion
  • The company has DKK 50 million shares after conversion

Now investor wants to convert the loan into shares. Investor receives DKK 5 million shares in exchange for converting the investment amount of DKK 5 million. Since investor owns 5 million out of 50 million shares, investor owns 10% of the company.

In this example the conversion price is set as a price per share. Another technical way to set the conversion price is to set the price based on a valuation of the entire company. In our example, the conversion price set in this way would be based on a pre-money valuation of the company of DKK 45 million.

A rather popular way of setting the conversion price is not setting a price at all.

How does that work?

It is possible to set the conversion price as the price paid by other investors in future investment rounds. In this way, the founders and investor postpone the question of negotiating the valuation of the company.

It’s important to stress the word postpone since negotiating the valuation cannot be avoided and will have to happen eventually.

#3 – Caps & discounts

When start-ups and their investors decide to postpone the issue of price in this way, two investor-friendly tools are sometimes used.

The first tool is a discount.

The discount represents a percentage which is subtracted from the price that the convertible note investor has to pay. You can say that the discount is an advantage given to the convertible note investor for investing early in the company.

Let’s say the discount is 20%. If future investors invest at a valuation of DKK 60 million, the convertible note investor gets to invest at a valuation of DKK 48 million.

The second tool is a cap.

A cap sets a ceiling which limits the price which the convertible investor might have to pay.

Let’s say the cap is set at a valuation of DKK 100 million. If a company ends up raising money at a valuation of DKK 120 million, the convertible note investor gets to invest at a DKK 100 million valuation because of the cap.

It is possible to use a discount and cap individually or together. Investors would probably want both, while founders would probably want neither. Exceptions apply.

#4 – Conversion scenarios

The next question is when investor’s loan gets converted into shares.

There are three popular models:

(1) When a company raises a new round of funding. Sometimes a threshold is set so that the company must raise a certain amount, for instance at least DKK 20,000,000 million, before the loan converts.

(2) Investor decides freely when to convert to shares. This gives investor the freedom to assess when converting suits investor best.

(3) At maturity. Maturity basically means the date where the loan “runs out” and needs to be repaid if it has not already been converted to shares. If you believe in a succesful future you don’t really care about the maturity date because you assume that the loan has been converted before that. But sometimes the maturity date does end up mattering.

#5 – Interest

Here we’re talking about the interest which accrues on the convertible loan before conversion or re-payment take place.

The most common rates in Denmark rates 0% (interest-free), 2%, 4% or somewhere between 5-8%.

It matters whether the interest is simple or compounded.

Founders would typically be interested in interest-free or a lower interest rate with simple interest.

#6 – Shareholders’ Agreement

The convertible note should also deal with the terms that would apply to investor once investor actually becomes a shareholder. I consider this crucial.

There are different ways of solving this issue:

(1) Negotiate a solid term sheet, including key terms of an eventual shareholders’ agreement, before agreeing on the convertible note

(2) Making investor accept the terms of an existing shareholders’ agreement

(3) Making investor accept whatever terms later stage investors negotiate

Written by Kristian Holte, technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

The Ultimate Founders’ Guide To Convertible Notes In Denmark

The Dark Side Of Law

Written by Kristian Holte, dealmaker & technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“It is legal because I wish it”

Louis XIV

In essence, law exists to promote fairness. To ensure this, lawyers in turn exist to communicate knowledge about law. In this way, everybody gets what they deserve.


Well, not in the world I operate in.

In this world companies, their leaders and owners manipulate their surroundings to advance their own interests. Towards this goal, law is a powerful tool. Experienced individuals learn this over time.

Nobody speaks of it. However, mastering the law increases the chances of success independently of other relevant factors. In this way, law may trump “fairness”, “trust”, “results”, “performance”, “risk taking” and “work ethic”.

It is the truth few people want to acknowledge.


According to Peter Thiel, sales works best when hidden.

I would argue that in a sense law also works best when hidden. People tend to go to great lengths to appear genuine.

When negotiating a business partnership, people rarely say things like:

  • “With the help of my lawyer, I’ve made the deal so complicated in order to make it impossible for you to figure out the consequences”
  • “I’ve hired an exceptional lawyer because I don’t really trust you”
  • “You really need a lawyer of your own, because the terms we propose are unusual, opaque and unfair”

Instead, people say things like:

  • “It’s all standard. Just a template. There shouldn’t really be anything to discuss in there”
  • “Oh that clause? I didn’t notice that one. My lawyer must have put it in without telling me”
  • “Of course, you’re more than welcome to hire a lawyer to check the documents. But that would slow us down and cost you a lot of money”


Competing interests may be the norm, rather than the exception. Even between people who share a common goal.

Conventional wisdom holds that competing interests mostly surface when things go wrong. In this scenario every person would fight to save himself. There might be some truth to this.

However, people tend to overlook that competing interests also arise when things are going well. Because in this scenario, there is monetary value to fight over.

Let’s take the founders of a company as an example.

From the outside, founders share the interest of the company becoming succesful. Despite this, there are a number of ways founders’ interests could compete, for instance:

  • A founder thinks he has become indispensable compared to the other founders and wants a larger piece of the cake
  • A founder has encountered financial problems in his private life and urgently needs cash
  • A founder has received an attractive offer to co-found a revolutionary new company with some extraordinary individuals
  • A couple of founders group to get rid of a founder because that founder achieves too much recognition for the company’s success
  • A founder eyes a lucrative exit on the horizon and wants to maximize his piece of the cake

In all of these scenarios, law could help each founder advance his personal interests.


In a world with widespread trust, law would not be needed. People and companies could engage in relationships with each other without any formal framework.

Whenever an issue would arise, people could trust each other to act fairly and reach a solution that would be acceptable to all parties.

Do such relationships exist? Yes.

Are they common? No.

Basically, if the downside of acting unfairly is sufficiently big, people tend to act fair. But most of the time, the downside is not sufficiently big.

Unusual strong trust is mostly seen in tight-knit communities. If you mess up here, there will be social consequences. For most people, such consequences hurt. People from the same culture, long time friends, long time business partners and family members tend to trust each other more.

So, when trust is not there, do you pass on an opportunity?

Some people do, but the more ambitious know they must take risks. Including risks in relationships.

Business people come in various forms. Some are more transactional. This breed will engage in a substantial number of business relationships. This makes it hard to develop strong trust with everybody.

Law then becomes a tool intended to replace the absence of trust. A sort of downside protection. The thought being, that if the relationship turns sour, law limits how bad it can get.

The aim of downside protection might have been the original intention. But what instead often happens is the emergence of downside protection’s evil cousin: upside maximization.

If you don’t particularly know, like or trust your business partner, why not maximize your own upside on his behalf?

The consequence of this mechanism is this:

Even if a business is successful, people still use law to obtain the largest possible piece of the cake.

This piece sometimes gets much larger than intended.

Law can do this for you. It does so on a daily basis. In a business relationship near you.


By definition, you don’t know when you’re getting manipulated. If you do, and choose to accept it, it’s no longer manipulation.

People and their lawyers use a variety of manipulation tactics. Some of them seem innocent. This is why they are so effective. They include:

  • Insisting on presenting the first draft of a deal
  • Making the deal legally as complicated as possible and cite false reasons for the complexity, if any
  • Prolonging negotiations as long as necessary to make the other side fatigue, give in and sign
  • Faking urgency in order to rush to close a questionable deal
  • Indicating that the other side and their lawyers are stupid if they question the law of a deal
  • Stating that the terms are “standard” and indicating that the other side would be amateurs for not knowing better
  • Blaming the other side for a lack of trust if they insist on involving their own lawyers

Generally, in this context, the more obvious a tactic is, the less effective it is.

Bargaining power might decrease the need for manipulation tactics. But it does not eliminate it.

Written by Kristian Holte, dealmaker & technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

The Dark Side Of Law

How To Legally Operate Commercial Drones In Denmark

Written by Kristian Holte, dealmaker & technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

drone [noun]

An unmanned aircraft or ship guided by remote control or onboard computers


Amazon is developing a drone-based delivery system named Amazon Prime Air. I find this very interesting … and difficult. As with all things with great potential.

One of the challenges is regulatory.

As witnessed by Amazon’s letter to the US Aviation Administration, Amazon would like for US rules to treat commercial drone operations better.

But what about Danish rules? How does the legal climate for commercial drone operations look in Denmark?


The Danish Transport and Construction Agency has issued some basic rules for drone operations.

For a drone weighing up to 7 kg some of the more interestering rules are:

  • It is not allowed to fly higher than 100 m
  • It is not allowed to fly over densely populated areas
  • It is not allowed to fly nearer than 150 m of urban housing and large roads
  • It is not allowed to fly nearer than 5 km of public airports

For drones weighing from 7 to 25 kg additional rules apply, for instance:

  • Operations have to take place from an authorized airfield
  • Liability insurance must be taken out

Now, as you can see, these rules apply serious constraints on the commercial operations of drones.

This is why the Transport and Construction Agency has issued additional rules for such operations.


According to these rules, the Transport and Construction Agency can issue a permit for commercial drone operations.

With such a permit, the Agency can cut companies some slack from the pressure of the basic rules. For this to happen, the Agency has to find that the company will implement adequate safety and control measures.

As a rule of thumb, the Agency only considers granting a permit if the following conditions are met:

  • Each drone must be operated within the pilot’s visual line of sight (not using cameras)
  • Each flight must be aborted if another aircraft is entering the airspace
  • Each flight must be carried out in accordance with an approved operations manual

If the flight is not carried out within the pilot’s visual line of sight, the Agency can only issue a permit if the flight takes place in specially dedicated airspace. This condition seems, for instance, to impede an army of long-distance automated delivery drones.

If the Agency grants a permit, this does not mean that a company can operate its drones without restrictions.

Generally, a company can expect to have to comply with at least the following rules:

  • A pilot must be designated to each drone flight
  • A drone is not allowed to fly higher than 100 m
  • A safety area with a radius of minimum 15 m and maximum 50 m must be maintained during the entire flight
  • A drone may not fly between sunset and sunrise
  • The operator must take out insurance
  • Each drone must be individually marked


In light of the optimism which currently surrounds commercial drones, the regulation imposes severe restrictions.

According to some the rules are not business friendly.

True, as the rules currently look, they might hinder a number of business models like the ones of Amazon Prime Air. But others, like drone photography in various forms, are already possible.

However, I do believe there is some wriggle room within current rules for serious providers.

But, if the drone industry gathers serious momentum, it seems likely that the rules will be changed. Fundamentally.

Written by Kristian Holte, dealmaker & technology lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

How To Legally Operate Commercial Drones In Denmark

Dilution In Disguise: Who Pays For The Option Pool?

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“The cause is hidden; the effect is visible to all”


A typical term in a term sheet is the option pool. Sometimes the pool is called an employee, incentive or warrant pool.

The pool normally makes up 10 to 20% of the shares in the company. The idea is that the pool is set aside to provide incentives in the form af equity to future employees and other key personnel. Learn more about options here.

So far so good. But who “pays” for the option pool?


In this context “paying” means giving up equity and thus owning a smaller stake of the company after the creation of the option pool.

There are different models to choose from when deciding who pays, including:

  • Founders pay for the entire pool:
    (1) Founders are first diluted when the option pool is established

    (2) Founders are then again diluted when investors invest

  • Founders and investors both pay for the option pool:
    (1) Founders are first diluted when investors invest

    (2) Founders and investors are then both diluted when the option pool is established

  • Investors pay for the entire option pool:
    (1) Founders are first diluted when investors invest

    (2) Investors’ investment is structured so that only investors are diluted when the option pool is established

As you can see it does matter who pays. Ultimately, it comes down to $$$.

You would think that term sheets always clearly deal with the issue. They might. But often they don’t. In these cases a term-sheet simply might state that a pool of, say, 10%, must be established.

So who is paying then? Founders? Investors? Both?

We can argue either way.

Investors tend to argue that founders must pay for the entire pool, since the price per share of investors’ investment is stated in the term-sheet. Founders tend to think that everyone should contribute to the pool in proportion to their ownership stake.

Let me illustrate with an example:

Two founders agree with investor on a valuation of their company of DKK 8 million pre-money, i.e. before the investment is made. Investor invests DKK 2 million, resulting in a post-money valuation of DKK 10 million. As a consequence, investor owns 20%, while the founders each own 40%. The term sheet states that an option pool of 20% of the total share capital post-money shall be established.

Where do the 20% come from?

– If the founders pay for the entire pool pool, each founder is diluted by 10% and therefore owns now 30% each.

– If the founders and investors pay for the pool together in proportion to ownership stake, investor pays for 4% and founders each for 8% of the option pool. Founders now own 32% each and  investor owns 16%.

– If investor pays for the entire pool, investor loses investor’s entire stake, which does not seem very realistic.


Some investors and their advisors occasionally use an elegant maneuver, which a lot of entrepreneurs never see coming. Using our example above, the following could be written in the term-sheet:

“The price per share is based on a fully-diluted pre-money valuation of DKK 8 million and a fully-diluted post-money valuation of DKK 10 million (including an option pool representing 20% ​​of the fully-diluted post money capitalization).”

The language in brackets is very important.

It means that the founders pay for the entire option pool.

This is the case since the price of investor’s shares and the corresponding percentage of ownership is calculated on the assumption that the option pool is already established prior to investor’s investment. This is a very subtle – and often well-buried detail – which many entrepreneurs do not realize. With good reason.

So: be beware of who’s paying for the option pool. It matters.

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

Dilution In Disguise: Who Pays For The Option Pool?

Pushing Up The Price: Is It Legal To Negotiate With Multiple Investors?

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“Necessity never made a good bargain”

B. Franklin

If you’re a start-up, negotiating with one investor may be good. But negotiating with multiple investors is better.

The reason is leverage.

If you’re more or less forced to accept the terms of any single investor, your bargaining position suffers. You can’t walk away. You can’t let more investors negotiate each other up.

So, let’s say a start-up has signed a term sheet with an investor. Would it then be legal to negotiate with other investors at the same time?

If the term sheet doesn’t say anything about negotiation with other investors, founders are free to do this. This will almost always be an advantage to founders because such investor competition means that the founders can drive up the valuation and close the investment on better terms.

However, there will often be a so-called “no-shop” clause in the term sheet if founders receive the term sheet from investor. This clause is also sometimes called “exclusivity”.


The wording varies, but may look like this (excerpt):

“The Company and Founders agree that they may not, for 60 days from the signing of the Term Sheet, directly or indirectly take action in order to receive investment offers in whatever form other than from Investor. This obligation shall cease immediately if the Investor chooses to cancel negotiations or does not answer the Founders’ inquiries for a period of seven days. “

A clause like this only binds Founders. Not the investor. Investor will therefore be free to negotiate investments in other similar companies at the same time. Some founders feel it’s unfair that only they should bound by the no-shop clause.


In my view, investors should at least present a substantial reason why founders should be bound by a no-shop clause. In that case, Investor should also explain why only founders should be bound by a no-shop clause and not investor himself.

Founders who know for sure that they will be negotiating with other investors, should not take on a no-shop clause. Be open about it. It strengthens your bargaining position.

If founders have the opportunity of putting together the term sheet themselves, from a strict founders’ perspective, there is no reason to include a no-shop clause. If founders despite still choose to include a no-shop clause, the investor should also be bound unless there are specific reasons to the contrary.

A no-shop clause typically applies as long as it takes to determine whether founders and investor can agree on the main terms for the investment. This typically takes between one and two months.

If founders are facing a situation where founders in parallel are considering to sell the company, it must be written into the clause that the founders are free to pursue these negotiations alongside negotiations with investor.


The main effect would probably be that the trust between founders and investor is weakened.

Legally, the effect of a violation is often very limited.

This is the case unless the consequences of the violation are written directly into the term sheet. A violation could be sanctioned with payment of DKK 500,000 or the payment of investor’s legal fees. In this case, violation could have noticeable consequences for founders.

However, if the consequences are not described, it will typically be difficult for investor to demonstrate a loss caused by founders’ breach of the clause.

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

Pushing Up The Price: Is It Legal To Negotiate With Multiple Investors?

How To Structure Start-up Options in Denmark

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

“Keep salary low and equity high”

S. Altman

A stock option is a right for a person to become a shareholder in a company. The person only becomes a shareholder if certain terms are fulfilled.

The most common term is that the person must remain employed for a certain period of time. Another common term is that certain milestones must be met, such as the development of a specific product or the achievement of a certain sales figure.

Options are popular with start-ups for good reason. Usually, a start-up cannot pay market salary for skilled employees. In this case, the start-up can make its offering more attractive by adding options to the employee’s pay.

This has two distinct advantages:

(1) The employee now has a potentially unlimited economic upside, and

(2) The employee has a strong incentive to help the start-up grow and become succesful

Great, right?

Yes, but options do have economic consequences. Start-ups need to address these from the beginning.

I have left out the finer print to make the following comprehendible. Seek advice before you actually implement options.


Start-ups worry a lot that employees are heavily taxed when receiving their options. A particular worry is that the employees have to pay the tax with money the employees do not yet have. The worry is intensified if the start-up already has raised money at a substantial valuation.

With the right approach, though, these concerns shouldn’t hold start-ups back.

It is possible to structure start-up options in a way that the taxation issue is pushed to a later point in time. This is possible for employees, directors, board members and others who perform a personal service for the start-up.

In brief, it goes like this:

The person is not taxed until the person exercises the options and becomes a shareholder. In that case, the person is taxed based off the difference between the exercise price and the market value of the shares. The exercise price may be as little as DKK 0.

Yes, this means that the person may have to pay taxes without having realized any return on the shares yet. If ever.

This is why it makes sense for start-ups and their employees to do either of two things:

(1) Give and exercise the options at a point in time, where the market value of the start-up’s shares is so low to make the tax reasonable small, or

(2) Agree that the employee may only exercise the options in case of an exit, such as the sale of the company. The idea here is that in case of a sale, the employee would then have the funds needed to pay the tax.


Roughly, the employee is taxed in the following way:

When the employee exercises the options

The employee is income taxed (normally up to 56%) when exercising the options.

The employee is taxed based on the difference between the exercise price (which may be DKK 0) and the market value of the shares at the time of the exercise.

So how do you calculate market value of the shares in an un-listed start-up whose shares have not been traded? Would the start-up’s valuation from the latest funding round apply?

The short answer: the market value has to be estimated in this case. I will deal with the details of the longer answer in a future post.

When the employee sells the shares

In this case, the employee’s gain from selling the shares is taxed as share income. This means a tax rate of 27% up for gains up to roughly DKK 50,000 and 42% for gains above that.


#1: Exercise before exit

An employee receives options for 5% of the shares in a start-up. The options vest over three years. At this point, the employee may exercise the options. The exercise price is DKK 0.

After three years, the market value of the shares covered by the options is DKK 500,000. The personal tax rate of the employee is 56%. The employee chooses to exercise the options.

The taxation would roughly look like this:

Market value: DKK 500,000

Exercise price: DKK 0

Amount to be taxed: DKK 500,000

Tax to be paid upon exercise: DKK 280,000

#2: Exercise at exit

The scenario is the same as in the above #1.

However, two years later the company receives an acquisition offer that prices the employee’s shares at DKK 5,000,000. The employee decides to sell.

The taxation would roughly look like this:

Purchase price: DKK 500,000

Selling price: DKK 5,000,000

Profit: DKK 4,500,000

Share income tax (27% of DKK 50,000): DKK 13,500

Share income tax (42% of DKK 4,450,000): DKK 1,869,000

Additional tax to be paid upon the sale: DKK 1,882,500

Total tax paid: DKK 2,162,500

Total profits after tax: DKK 2,837,500

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

How To Structure Start-up Options in Denmark

The ultimate legal check-list for Danish start-ups & founders

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

A startup messed up at its foundation cannot be fixed

P. Thiel


Agree on how to split the equity between co-founders. It doesn’t have to be an equal split. The individual contribution may have different value ​​or co-founders may not be equally involved.

Incorporate an ApS or IvS right away to formalize ownership. An I/S may be right choice in some cases. Create a register of shareholders to ensure who owns how much.

Enter into a simple shareholders’ agreement dealing with key issues such as:

  • Level of founders’ work commitments
  • What happens if a founder leaves or does not perform
  • Whether a founder can sell shares, how and at what price
  • Product rights (intellectual property)
  • Possible non-compete and non-solicitation clauses


Put a vesting plan in place for founders’ shares. Vesting protects founders against each other. If a founder no longer wants to work for the company, he shouldn’t keep his shares.

Structure the vesting as warrants or options in case you don’t want to have to buy back a founder’s shares in case he leaves. The earlier you put vesting in place, the better you can argue to later investors that the remaining vesting be shortened.

Also use vesting in relation to employees, directors, suppliers and other stakeholders who receive shares.


Use incentive compensation in the form of bonuses, options or warrants as appropriate. Know the tax consequences for the recipients and the company.

If your company uses warrants or options, put a plan in place as early as possible while the value of your company is still low.

If you hire salaried employees (“funktionærer” in Danish) remember to comply with the special rules of the Danish Stock Option Act. Be aware of the risk of share re-purchase clauses which may be invalid if unfair.

Also, remember that non-compete clauses for salaried employees are not free and not always valid.


Clear any conflicts with your employees’ former employers who may claim your company’s intellectual property.

Transfer any intellectual property to the company created before the incorporation of the company.

Insert intellectual property clauses in employment, co-operation and consultant agreements that make your company the owner of the intellectual property.

Register any important business names as trademarks internationally as early as possible. Domain name registration is not enough.


Take control of your legal documentation from the start. Choose a central, secure and legal location online to store all legal documentation. This includes articles of association, minutes of general meetings, employment agreements, shareholders’ agreements as well as intellectual property documents including trademark, domain and patent registrations.

Prepare the documentation in English from the start. Use dual-language versions of the documents that must be in Danish such as the articles of association. English documentation makes many things easier later in relation to investors, business partners and potential acquirers.


Know the terms of the term-sheet if your company is raising angel and/or venture capital. Be aware of several potentially unpleasant term such as control rights, incentive pool, liquidation preferences and anti-dilution.

Calculate the financial consequence of various terms in likely scenarios.

Hire a start-up lawyer to help you.


If your company is successful you will certainly face legal pressure. Either from established players, the public, industry associations, competitors or others.

View this as a compliment. It is proof that your company is already so successful that some perceive it as a threat.

Written by Kristian Holte, dealmaker & lawyer

Mail: kristian@advokatholte.dk | Phone: +45 7199 5572

10421589_10101195903776054_2850738927814860084_n (1)

The ultimate legal check-list for Danish start-ups & founders