5 Contract Mistakes That Kill EU Startup Funding Rounds
Every VC due diligence pass surfaces the same contract problems in EU startups. Five of them come up so consistently that finding them late in a process — post-term-sheet — can kill a deal outright. Find them early.
Incomplete IP Assignment
Your co-founder built the initial product prototype before the company was incorporated. She never signed an IP assignment agreement. Or your lead developer is a freelancer paid through a services contract that says the work is "licensed" rather than assigned. The company thinks it owns the IP. The law says it doesn't.
VCs will ask for assignment agreements from every founder, employee, and contractor who contributed to the IP. If any are missing, unsigned, or use the wrong language, the clean-title question gets raised. Some investors will condition the round on clean IP assignment being completed first. Others will walk.
Lexara catches this: During contract review, we identify missing assignment language, work-for-hire clauses, and ambiguous licensing terms. We flag which agreements need to be re-executed and what language is required for clean assignment.
Cap Table Errors from Convertible Notes
Convertible notes are common in pre-seed EU startups, and the drafting is often done by a founder using a template. Common problems: the cap doesn't account for the Qualified Financing threshold correctly, the discount rate applies to the wrong share class, and the MFN (Most Favoured Nation) clause has a faulty carve-out that exempts certain funding rounds.
When investors model your cap table during due diligence, they find discrepancies. A 10% discrepancy in fully-diluted ownership for a key investor can become a renegotiation point on the term sheet — or a reason to walk.
Lexara catches this: SaaS and supplier agreements reviewed by Lexara often include equity-adjacent provisions (warranties, anti-dilution language) that interact with your cap table. We flag these during review before they surface during investor due diligence.
Side Letters with Undisclosed Terms
You gave an angel investor a preferred return guarantee in a side letter. Or you promised an advisor an equity kicker that wasn't disclosed in the main investment agreement. Side letters are private — but their existence gets asked about in every serious due diligence. If you said "no side letters" in the disclosure schedule and one exists, that's a representation breach.
Even when side letters are disclosed, terms that conflict with or contradict the main agreement create conflicts that require resolution. VCs want to see a clean, uniform set of terms across all investors.
Lexara catches this: During contract review, we identify provisions that grant preferential rights outside the main agreement framework — and flag that these should be disclosed and reviewed together.
GDPR Non-Compliance in Data Processing
Your product uses a US cloud analytics platform. The data processing agreement was signed when the vendor was small and has never been updated. The current DPA doesn't meet GDPR Article 28 requirements — no sub-processor disclosure, no data breach notification timeline, no deletion obligations on termination.
Investors with a European mandate — most EU-focused funds and many international funds investing in EU companies — will run a data privacy review during due diligence. Gaps found here create conditions precedent to funding. In some cases, they're deal-killers outright. GDPR compliance isn't optional for a funded company.
Lexara catches this: We review all vendor DPAs for GDPR Article 28 compliance, flagging missing provisions, inadequate breach notification timelines, and sub-processor disclosure gaps. You get a prioritised list of what to fix before the raise.
Missing Milestone / Anti-Dilution Clauses
Your term sheet has no milestone-linked funding tranches. If the next milestone isn't hit, the company runs out of runway before the next raise. But there are no provisions for bridge financing, no investor commitment for continuation, and no carve-out for the extension period. The term sheet assumes everything goes to plan. It never does.
EU VCs are increasingly adding milestone provisions to term sheets. Founders who haven't reviewed the implications — on control, on option pool size, on anti-dilution mechanics — find themselves in a round where the next funding is contingent on metrics they can't control.
Lexara catches this: Lexara reviews investment and shareholder agreements for milestone provisions, anti-dilution language, and continuation commitment terms. We flag provisions that give investors discretionary control over future funding tranches.
When in the Process to Review
The rule is simple: 3–6 months before you plan to raise. Not 6 weeks. Not after the term sheet is signed. Three to six months before. That gives you time to find the issues, re-execute bad agreements, and come to investors with clean documentation rather than a list of open items.
Contract problems discovered after a term sheet is signed are disproportionately damaging. They signal to investors that you weren't prepared — and in a competitive process, preparation signals are the first thing investors use to differentiate founders.
The review that matters: For €199, Lexara reviews the key documents an investor will pull during due diligence — founder agreements, employment contracts, IP assignments, data processing agreements, and investment-related documents. That's the same review that takes a law firm 2–3 weeks and costs €3,000–€5,000.
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