Digital execution of venture capital transactions

The formal requirements under Austrian law for the execution of all kinds of contracts and ancillary transaction documents are notoriously strict. For many years this was perceived as a burden in the fast-moving venture capital community, due to the time and expense involved in coordinating compliance. While the need for notarial services has not changed, recent technological developments have made it easier to execute VC transactions, slowly rendering documents signed in wet ink a thing of the past.

Digital notarial services

There is hardly a step in a venture capital financing round in Austria that does not need to comply with specific formal requirements. Investment and shareholder agreements must be executed as a notarial deed in most cases. The same applies to subscription declarations. Filings with commercial register courts require notarised signatures and minutes of shareholder meetings for the resolution on the capital increase need to be recorded by a notary.

Since notary appointments can be time-consuming (notarial deeds must be read by the notary in the presence of all signatories, which often takes hours), we regularly use powers of attorney. But these require notarisations too. Notarised documents, which are signed in countries with which Austria has no bilateral agreement (such as Switzerland or the UK) also need an apostille. One of the few positives to come out of the Covid-19 pandemic was the acceleration of digital notarial services in Austria, making it possible to use them from anywhere around the globe. The requirement to obtain apostilles becomes obsolete in such cases. It typically takes several days or weeks to get notarised PoAs with wet ink signatures and apostilles. But thanks to virtual notarisation by an Austrian notary, it is possible to receive the original notarised PDF document within a few hours.

The first law for electronic notarial services came with the Elektronische Notariatsform-Gründungsgesetz shortly before March 2020. However, it only permitted the formation of limited liability companies. Driven by the pandemic, an expansion came with Section 90a of the Notarial Code, which for the first time allowed almost all notarial services to be performed digitally.

Digital execution apart from notarial services

In the past, contracts were executed by sending signature pages back and forth in cases where no notarisation or notarial deed was required, and no physical signing meeting was scheduled. This was inefficient, particularly when multiple parties were involved. Electronic signatures, which are harmonised throughout the EU by means of a regulation, make these processes much easier.

According to the eIDAS Regulation, there are three levels of electronic signatures across the EU: simple signatures (e.g. DocuSign eSignature), advanced signatures (such as e-mail certificates) and qualified electronic signature (QES) (such as ID Austria, formerly Handy Signatur). Simple signatures and advanced signatures do not meet the written form requirement of Section 886 of the Austrian Civil Code (ABGB), but such signatures can at least provide evidence of the contract execution. In our daily VC practice, we use simple signatures via DocuSign a lot for the execution of convertible instruments (such as CLAs and SAFEs). DocuSign allows an automatic signing process to be set up. Each signatory receives a signing request by e-mail and it is even possible for the signatories to place their electronic signatures within a few seconds directly via smartphone.

The new possibilities of digital notarial services and electronic signatures already make the execution of VC transactions significantly more efficient. We are sure there's even more to come for execution processes in the digital universe of the future.

authors: Niklas Kerschbaumer, Maximilian Czernin