How to protect the decision-making process and the interests of the startup and the investors
The success of a startup doesn't just depend on having a good product or team, but also on a structure that allows for growth without losing strategic control. As they progress through startup investment rounds, small investors enter, business angels or specialised funds that generate a phenomenon known as the atomisation of capital, that is, many partners with a voice and a vote.
To prevent this, there is a solution that can be very effective: pooling of minority shareholders, a key legal and strategic tool for maintaining governance efficiency.
What is the pooling and how does it work?
The pooling it involves grouping retail investors under a single structure, which usually takes two forms:
SPV
It is a special purpose vehicle created specifically to pool minority investors, who contribute capital to the vehicle instead of investing directly in the startup, with the SPV being the entity that formally appears as a shareholder.
Keys:
- Usual legal form: private limited company, due to its flexibility in Spain, although for larger-volume transactions a public limited company may be chosen.
- Contributions: The investors make their contributions to the capital of the SPV, with the latter being the entity that acquires the startup's shares.
- Shareholders' agreement in the SPV: regulates the internal operation of the vehicle (information for minority shareholders, dividend distribution, voting rules, appointment of a representative…).
- Governance an administrator or board of management is appointed representing the interests of the collective.
- Taxation: It is important to assess the tax costs of double taxation (between SPV and startup), which must be studied on a case-by-case basis.
Pooling of votes
It involves the block voting of certain minority shareholders. In this way, the startup keeps all investors on its cap table, but only one will hold the voting rights.
Keys:
- Contractual formalisation: a private pact is signed that binds the partners in their actions within the general meeting. For example, in the investment agreement, in the shareholders' agreement or even before.
- Co-ordination A representative of the trade union that concentrates the vote is appointed.
- Internal voting rules: depending on each subject, simple majority, qualified majority.
Benefits:
- Simplified cap table and strategic control: By grouping together minority shareholders, vote dispersion is avoided, procedures are streamlined, and the risk of gridlock at general meetings is reduced.
- Investor attraction: An orderly share capital is more attractive to investors, as it facilitates negotiation and conveys a greater degree of professionalism.
- Tactical voting: the pooling establishes joint voting rules, allowing founders to anticipate the behaviour of minority shareholders on key decisions and minority shareholders to set a strategy to act as a bloc with greater leverage against the majority partners (founders and lead investors).
- Reduction of workloads: Centralisation facilitates internal management, as the founders only have to deal with the trade union representative or the SPV.
SPV or trade union? Which is better?
- SPV: It brings clarity and professionalisation, ideal for large funding rounds. It entails higher setup and management costs.
- Voting syndicate more cost-effective and flexible, recommended in initial rounds or with few investors.
Some startups start with a union and, as grow, evolve into an SPV.
Pooling as a defence against dilution
In growing startups, dilution is inevitable. The pooling brings together the founders, lead investors and minority shareholders in each round, facilitating the negotiation of special rights (vetoes on strategic decisions, priority in share sales, etc.) and consolidating a balance between external funding and internal control.
Conclusion: the pooling as a pillar of growth and protection in startups
The pooling of minority shareholders is not just a legal tool: it is a comprehensive governance strategy that brings stability, trust and professionalism. Choosing between an SPV or a voting syndicate will depend on the needs of each startup.
Plan the pooling from the very first rounds it sends a clear message to the market: the startup is prepared for robust growth, transparency, and a forward-looking vision. In Busquets Law & Finance we help to design and implement the most appropriate formula for each case, guaranteeing legal certainty, protection for the founders and attractiveness for future investors.