Overview
If you’re looking to raise funds (of course you are), then you’ll need to make sure that your topco is incorporated in an investable jurisdiction. In a nutshell, this means a place that typical startup investors (e.g., VC’s) are happy to invest in and hold shares in companies that are incorporated in that jurisdiction.
Investable jurisdictions are primarily (but not always) common-law based locations like Delaware, UK, Cayman Islands, BVI, Hong Kong or Singapore. Local investors or those with experience investing in a specific country may be happy investing directly in a civil law jurisdiction (e.g., France, Germany, Spain, Sweden, Denmark etc.), but most venture money is invested in common-law jurisdictions.
Key features of investable jurisdictions
Investible jurisdictions have a long track record of recognising and enforcing typical investment rights and obligations, like:
conversion of convertible instruments like SAFEs;
share transfer restrictions (e.g., tag alongs, drag alongs, rights of first refusal, preemption rights);
vesting or reverse vesting (for founders and share incentive plans); and
They also allow for the creation of multiple classes of shares, as well as quick corporate actions like issuing and transferring shares or making changes to your board of directors.
Why do I need a topco in an investable jurisdiction?
Having a topco in an investable jurisdiction can help you:
raise funds easily, by being in a place acceptable to most investors;
issue convertibles like SAFEs, by being in a place that recognises and enforces the right to convert these convertibles into shares;
protect your rights as a founder, by being in a place that recognises share transfer restrictions and enforces vesting; and
have enforceable governance rights, like who sits on the board and any voting thresholds.