The definition of a startup is not easy to formulate, due to the lack of a single definition, and in some cases any definition at the legislative level of individual countries, the European Union as a whole.

The term “startup” means a young company founded by one or more entrepreneurs who have a business idea and want to bring unique products or services to the market.

To come to a common understanding of a startup, it is worth taking into account the presence and/or absence of the attributes of a startup, which can be divided into the following:

• Those related to company characteristics (e.g., years of existence, number of employees, annual revenue, etc.),
• Those that are related to the company’s potential for rapid growth or innovation.

The peculiarities of these or those conditions differ from country to country.

• Innovation: Being a startup means launching a business model that benefits customers through an entirely new product or service. The challenge is to develop a suitable business model.
• Temporary: a startup is a special stage aimed at turning an idea into a business. According to trends in legal systems, a company is defined as a startup in a limited period of time, which can vary depending on the chosen jurisdiction.
• Possible growth: a startup can grow very quickly and grow far compared to a company with a classic model. Therefore, it is important to know how to properly handle startup legal support.

Estonia has now created a comfortable environment for the implementation of startup projects, including for non-residents of Estonia, which includes the provision of a special kind of visa and other benefits.

According to § 624 of the Aliens Act, a startup is a business entity registered in Estonia, which operates to develop and launch a business model with high innovative, reproductive potential, which will make a significant contribution to the development of Estonian business environment.

To be eligible for the Startup Visa as a founder, you need:

– A tech-savvy, innovative and scalable business with growth potential, solving big problems, serving millions of people.
– Approval from the Startup Committee stating that you meet the definition of a startup and qualify for the Startup Visa.
– At least 200 euros for each month you want to spend in Estonia. This means €2400 for an annual visa. This is the minimum required by law.

How to apply for a startup visa?

• Fill out the application.
• Qualification. The Startup Committee will review the application and decide if you qualify as a startup within 10 business days.
• Fill out an application for a startup visa or a temporary residence permit application, and submit it to the Estonian embassy or the Estonian Police and Border Guard Board service point.

There are two ways to start your startup in Estonia:

– If you do not have an Estonian company yet, you can apply for a long-term startup visa (up to 12 months) or a short-term visa (up to 3 months)
– If you have already established an Estonian company, you can apply for either a startup visa (both short-term and long-term) or a residence permit for a startup business (up to five years).

Costs:

1. The state fee for a long-term visa is 100 euros.
2. The state fee for a temporary residence permit is 160 euros for an application in Estonia or 190 euros for an application at the Estonian embassy.

Investing in a startup is a risky business, so before providing funds, you should understand all the legal consequences associated with ownership of the investor’s share, potential liability in case something goes wrong with the investment and what rights you have in the future activities of the company.

Before making any investment you must:

1. Familiarize yourself with the terms of the investment. Before investing in a startup, you should understand exactly what type of investment you are making and the risks involved, what rights you have as an investor, and whether there are restrictions on when and how you can sell your stake.
2. Know your exit strategy. It is important to decide how long you plan to remain an investor in the startup and how you will exit the company in the future.
3. Protect yourself legally. Ask a lawyer to review any contracts or agreements you sign and make sure all of your rights as an investor are clearly stated. This will help ensure that your interests are protected if something goes wrong with the company or its management.

Different types of startup financing:

• Debt capital – refer to borrowed funds that are repayable most often with a fee for their use.
• Equity financing – raising funds by selling and giving up part of the future company in favor of the investor, which gives the investor additional corporate rights in the company.

A venture fund is an alternative investment fund that focuses on startups and early-stage companies. Small businesses need to raise capital from outside sources because they do not have their own capital or cannot access credit. Companies typically use venture capital to expand, enter new markets and accelerate growth.

According to the European Union’s Venture Capital Funds Directive, a venture capital fund means a collective investment enterprise that:

• intends to invest at least 70% of its total capital contributions as qualified investments.
• does not use more than 30% of its total capital contributions to acquire assets other than qualified investments.
• based in the territory of member states of the European Union;

“Qualified investments” means any of the following instruments:

1. equity or quasi-capital instruments that are issued by:

– by a qualified portfolio company and acquired directly by a qualified venture capital fund from a qualified portfolio company,

– by a qualified portfolio company in exchange for an equity security issued by a qualified portfolio company, or

– An entity in which a qualified portfolio company is the majority shareholder and which is acquired by a qualified venture fund in exchange for an equity instrument issued by a qualified portfolio company;

2. secured or unsecured loans made by a qualified venture capital fund to a qualified portfolio company in which the qualified venture capital fund already has qualified investments, provided that not more than 30% of the aggregate capital contributions and uncommitted committed capital in the qualified venture capital fund is used for such loans;

3. shares of stock in a qualifying portfolio company acquired from existing shareholders of that company;

4. units or shares of one or more other qualified venture capital funds, provided that those qualified venture capital funds have not themselves invested more than 10% of their aggregate capital contributions and unclaimed committed capital in qualified venture capital funds;

“Qualified portfolio enterprise” means an enterprise that:

1. at the time of investment by a qualified venture capital fund

– Is not admitted to trading on a regulated market or multilateral trading facility (MTF) as defined in Article 4(1)(14) and (15) of Directive 2004/39/EC

– employs fewer than 250 persons, and

– Has an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million;

2. is not a collective investment undertaking;

3. is not one or more of the following:

– a credit institution as defined in paragraph (1) of Article 4 of Directive 2006/48/EC of 14 June 2006 relating to the conduct and operation of credit institutions,

– an investment company as defined in Article 4(1)(1) of Directive 2004/39/EC

– an insurance undertaking as defined in Article 13(1) of Directive 2009/138/EC of 25 November 2009 on the commencement and continuation of the business of insurance and reinsurance (Solvency II)

– a financial holding company as defined in Article 4(19) of Directive 2006/48/EC, or

– a holding company of a mixed business, as defined in Article 4 (20) of Directive 2006/48/EC;

4. established in the territory of a Member State or in a third country, provided that the third country

– is not on the list of countries and territories not cooperating with the Financial Action Task Force on Money Laundering and Terrorist Financing,

– has signed an agreement with the country of origin of the manager of the qualifying venture capital fund and with each other member state in which the sale of units or shares of the qualifying venture capital fund is contemplated, to ensure that the third country fully meets the standards set forth in Article 26 of the OECD Model Tax Convention on Income and Capital, and to ensure effective information exchange on tax matters, including any multilateral tax agreements;

Establishment of a venture capital fund:

1. Registration of the venture fund in the appropriate legal form (associations, partnerships, etc.).

2. choice of jurisdiction (some of the criteria for an appropriate choice are political and economic stability, availability of legal preferences, existence of double taxation treaties, reputation of the jurisdiction, lower taxation).
3. organization of the activity structure, management of the venture fund. Drafting and conclusion of corporate agreements, founding agreements, and other types of internal documents of the venture fund.