[author: Geir Evenshaug]*
World Law Group member firms recently collaborated on a Global Venture Capital Guide that covers more than 30 jurisdictions on investment approval processes, typical investment sectors and investment structures on Venture Capital deals (and more!).
The guide does not claim to be comprehensive, and laws in this area are quickly evolving. In particular, it does not replace professional and detailed legal advice, as facts and circumstances vary on a case-by-case basis and country-specific regulations may change.
This chapter covers Norway. View the full guide.
- In your jurisdiction, which sectors do venture capital funds typically invest in?
Key sectors attracting venture capital (VC) investments in Norway include information technology and digital media businesses, e-commerce, healthcare and life sciences, consumer, education and hospitality, and oilfield services.
- Do venture capital funds require any approvals before investing in your jurisdiction?
- Are there any legal limitations to an offshore venture capital fund acquiring control or influencing the business, operations, or governance of an investee entity?
There are no restrictions on a foreign VC acquiring control or influencing operations of a private company within the sectors mentioned under Q1 above.
- Would an investor be required to undertake an antitrust analysis prior to investment? When would such a requirement be triggered?
Generally, early-stage VC transactions in Norway will rarely require antitrust/merger-control filings as this is mandatory if the involved entities have a combined turnover in Norway of at least NOK 1 billion and more than one of the involved entities have a turnover in Norway of more than NOK 100 million.
- What are the preferred structures for investment in venture capital deals? What are the primary drivers for each of these structures?
Typically, VC funds will invest through an initial minority stake in equity and then either have the right to apply for further equity through conditionally committed capital by way of issuance of capital calls, or by way of conversion of shareholder loans or convertible notes. The main driver would be to create flexibility as to the timing and amount of money to be invested as equity, and also retaining the possibility to remain a creditor. Tax implications for the specific VC funds may also be important for the structure.
- Is there any restriction on rights available to venture capital investors in public companies?
No. VC funds would normally not invest in public companies in Norway as it would not constitute venture capital. The threshold for triggering a mandatory offer for all shares in a listed company is the control of 1/3 of the shares and votes pursuant to Norwegian take-over rules.
- What protections are generally available to venture capital investors in your jurisdiction?
The Norwegian Private Limited Companies Act provides for certain minority protection rules, such as a requirement for equal treatment, a prohibition against unreasonable exercise of powers by the majority, different voting thresholds for certain decisions, and the right to have matters discussed at general meetings. From a contractual point of view, protections are subject to negotiations and the basic principle of freedom of contract.
- Is warranty and indemnity insurance common in your jurisdiction? Are there any legal or practical challenges associated with obtaining such insurance?
In Norway the W&I insurance market has become increasingly important and we see no particular legal or practical challenges compared with other European jurisdictions.
- What are common exit mechanisms adopted in venture capital transactions, and what, if any, are the risks or challenges associated with such exits?
In a typical venture capital deal, investors opt for a waterfall exit mechanism with multiple exit options. This usually includes exit through an initial public offering (IPO), a put option on the founders and buyback of capital. If the company/founders are unable to provide an exit through any of these mechanisms, as a last resort, investors reserve the right to sell their investment to a third-party buyer along with the founders' stake in the entity by exercising a drag right.
Implementing each of these exit mechanisms is not without its challenges. A successful IPO or exercising of a drag right is highly dependent on market sentiments; exercising a put option on the resident founders assumes that founders have the financial clout to purchase back the VC fund's shares (and debt); and a buyback by the company is subject to several statutory limitations (e.g., that the company has distributable profits to pay for the shares).
- Do investors typically opt for a public market exit via an IPO? Are there any specific public market challenges that need to be addressed?
IPOs for venture capital companies are not typical in Norway where the market for listed companies typically consists of more mature businesses. While IPOs are possible for VC entities, a successful public market exit depends significantly on external factors such as market conditions and regulatory and political climate, which are beyond the control of exiting investors. The listing of shares on a regulated market in Norway is subject to the listing rules of the Oslo Stock Exchange (alternatively Oslo Axess) and the Norwegian Securities Trading Act, which substantially incorporates EU legislation in this respect (including rules regarding listing and offering prospectuses).