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Partech Business Club – The contractual aspects of the corporate group/startup relationship

On May 30th, Partech invited several large groups to attend a breakfast meeting. It was the opportunity for Karen Noel, General Partner at Partech, to focus on the contractual aspects of the corporate group/startup relationship. For many years, large groups and startups have looked at each other from afar. Today, they are entering into a healthier phase of collaboration with real value creation, even if some subjects continue to generate tension and questions. For Karen Noel, transparency is key: when large groups invest in startups, from the very beginning they should clearly state their expectations and anticipate the legal consequences.

She shares with us her observations and conclusions on a variety of themes based on her numerous years of experience in the legal field:

The different types of relationships between large groups and startups – I have identified 4 main relationship profiles: corporate groups looking for a commercial/business partnership; groups looking to organize technology intelligence monitoring through investment in an investment fund; direct investment; acquisition... At Partech, we are convinced that investing in a fund is a good way to manage them.

The purpose of the relationship from a corporate perspective -  I am convinced that it is crucial to clearly state what you are looking for. A large group may want to invest in a startup to monitor technological intelligence, to integrate new models into their own organization or to outsource development projects. In our portfolio, we even have the case where a large group has externalized one of their business units into a startup. At Partech, we accept a captive investment process as long as it is clearly defined. Lastly, a large group may also want to make a strategic or purely financial investment.

The purpose of the relationship from the startup perspective – Startups need corporate groups and are not worried about them entering their capital. Startups may look to access sector expertise; they may want to build a business partnership, combined or not with an investment. A startup may also be looking for access to the group’s facilities/business units to test their products. To a startup, feedback on their pilot is critical. Lastly, startups also look for sustainability in their capital - large groups can offer them more stability.

Confidentiality is an important component of the relationship – 10 years ago, venture funds were reluctant to sign an NDA (non-disclosure agreement) because they considered that the best protection for startups was the fund’s reputation.  Today, we continue to see this same trend in large groups. At Partech, many of our startups still struggle to converge with a large group when the time comes to sign an NDA. It is essential to understand that an NDA works both ways: you can’t begin a healthy relationship with a startup, whatever its size, if you don’t accept that it is vital for the startup to protect their data and their technology. At Partech, our duty is to protect the confidentiality of our startups’ data. This is also true for large groups, as they are dealing with people who take high risks and are agile. Hence, signing an NDA shouldn’t be an issue. Permeability is key. How information on the startup will circulate within the group is worrying for the startup too, and an NDA is reassuring. At Partech, we provide our startups with a 2-page template to ease this process.

Different types of minority investments in startups – We have identified 3 main direct investment possibilities: direct investment on funds; captive corporate venture structure (in a group’s subsidiary when 100 % managed by the group); a corporate venture structure with independent management (like Orange for example), which, for the startup, is like dealing with a fund.

Shareholders’ agreement clauses are a key issue – In my experience as a lawyer working with startups, and not just from my collaboration with Partech, it is in the interest of both the startup AND financial investors to work with corporate groups. Once again, clarity is key. If both sides are perfectly clear on what they expect from each other, then the following subjects of tension will be resolved more easily.

Governance - Access to any type of supervisory Board should be clearly requested to the startup and you, corporate group, must say when you want to access this board. The reason is that your presence within this board should not lead to lengthier timelines. You need to put aside your own internal authorization processes which should not be allowed to slow down the startup’s decision-making process. Your presence on their board may also raise an issue of conflict of interest: in the US for example, there is an automatic rule where directors in conflict of interest are temporarily excluded from the board. Veto is the last point. At Partech, we do not ask for veto as we consider that this is not part of the investor’s role. Corporate groups should not be granted with veto rights

Pre-emptive rights are another important issue when signing shareholders’ agreement – When large groups co-invest in a startup with us, we have a pre-emptive right on the shares sold by founders, whereas in general, we would prefer corporate groups not to have a pre-emptive right. But the rules of the game are pari passu. Still one of the perverse effects of pre-empting rights is that it allows you to increase your stake in the capital: having a corporate group with a 5% or a 35% stake in your capital is not the same in terms of the future liquidity of the company.

Access to information – Some funds request very detailed and complete reporting from startups. Here again, to ensure smooth collaboration, it is important to reassure the startup and the co-investors about how you function and how information will circulate within the group.

Liquidity – providing with a corporate group with a say on the liquidity is generally seen as extremely problematic by financial investors and tends to be a poison pill for future acquirors. A best practice to be further developed is to offer the corporate with a right of first offer.


The keys to a successful relationship - When investing in a startup, it is really key to clearly identify your objectives.

  • Be transparent - trust the startup and accept their paranoia and that of financial investors;
  • Accept that each party does not necessarily have the same expectations;
  • It is essential to promote best practices and I must admit that the BPI does an outstanding job on this;
  • Professionalize the investment by entrusting it to dedicated teams, not to operations;
  • Understand and accept the risks inherent to investing in a startup and draw the legal conclusions;
  • Entrust the legal representation of interests to specialized councils, it’s a great time saver.



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