Swiss fundraising: legal structuring

Note: V1 LexUp draft pending review. Indicative, not personalized advice.

A fundraising has three layers: commercial (convince the investor), financial (calibrate the numbers), and legal (structure the deal). This guide focuses on the third, the angle often neglected at pre-seed and regretted at seed.

Convertible note vs. equity round

Two main structures for a pre-seed to seed round:

Convertible note (or SAFE-like in Switzerland)

The investor lends money to the company. At the next round, this loan converts to equity at a discount or with a valuation cap. Pros:

• Speed: no need to negotiate valuation now. We set it at the next round when we have more data.
• Lower legal cost: a well-drafted convertible fits in 8-12 pages. An equity round needs SHA, term sheet, revised articles, board pack.
• No immediate dilution: founder keeps 100% of the cap until conversion.

Cons: the investor has no governance rights before conversion. If the company exits without an intermediate round, treatment is ambiguous (often: principal + interest repayment, or conversion at deal value).

Equity round

The investor buys shares directly. Cap table changes immediately, valuation set, governance defined. More complex to structure, but cleaner long-term.

Rule of thumb: convertible up to CHF 1-1.5M. Above, equity round (the investor wants their board seat, protections, an official valuation).

Term sheet: the document that really matters

The term sheet is the non-binding document setting the economic and legal parameters of the deal before the SHA and final articles are drafted. Poorly negotiated, it becomes a trap: Swiss case law considers a signed term sheet creates a duty of good faith ("culpa in contrahendo"). Backing out is frowned upon.

Critical points to lock at term sheet stage:

• Pre-money valuation
• Round size and structure (lead + co-investors)
• Liquidation preference (1x non-participating remains early-stage standard in CH)
• Anti-dilution (weighted-average broad-based for the reasonable version)
• Drag-along threshold (75% of capital, not below)
• Reserved matters (list of decisions requiring lead approval)
• Founder vesting (4 years, 1-year cliff, standard)
• ESOP pool: size and timing (before or after pre-money, big difference)

Cap table: the table that doesn't forgive

The cap table lists who owns what, in absolute values and percentages, before and after the round. Three principles:

1. Always in pre- AND post-money. An investor seeing "X% post-money" without grasping the effect of an ESOP allocated before the raise will get burned.
2. ESOP before or after pre-money: if ESOP is in pre-money, founders are diluted. If post-money, the investor is. The negotiation plays out here.
3. Plan 2 rounds ahead: if after seed you plan a Series A at 18 months, simulate the cap table after both rounds. You'll see if you keep enough incentive to stay motivated through Series B.

ESOP / incentive plan

The employee option pool (ESOP, sometimes VSOP/PSOP in Switzerland for tax reasons) is typically created before or during seed. Standard size: 10-15% of pre-money capital at seed, expanding toward 20% across rounds.

In Switzerland, two possible structures:

• Real options plan (true shares at exercise), taxed as variable salary.
• Phantom plan / VSOP (cash payout equivalent to capital gain), administratively simpler, but less "shareholder-feel" psychologically.

A pre-tax ruling with the canton is often recommended to secure treatment before deployment.

Due diligence: what VCs check

After the term sheet is signed, the VC runs a due diligence (DD) over 3 to 6 weeks. Three angles:

• Legal: up-to-date articles, prior SHAs, employment contracts, key client/supplier contracts, IP assignments, ongoing litigation, GDPR compliance.
• Financial: audited accounts if available, current accounts, projections, debt/equity structure, KPIs.
• Tech / product: code audit, open-source dependencies, infrastructure, security.

Prepare a data room upfront = 2-3 week gain on the calendar. It's market standard: if you don't have it, the VC will ask.

Pitfalls to avoid

1. Signing a poorly calibrated convertible, no cap, or a cap so low it massively dilutes at the next round.
2. Accepting a participating liquidation preference, the investor recovers their investment AND gets their pro-rata. On a modest exit, founders can end up at zero.
3. Under-sizing the ESOP, having to expand the pool during Series A costs founder equity, not investor equity.
4. No tax ruling on the ESOP, risk of tax reclassification 2-3 years later with backdated salary charges.
5. Cap table in Excel without versioning, by the third round, no one knows what was issued when. Use dedicated tools (Capdesk, Carta) or a well-maintained record at the lawyer's.

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