All questions

Overview

Austria’s venture capital (VC) and start-ups ecosystem experienced much activity in 2022. Despite the ongoing war in the Ukraine, surging inflation, debt tightening and an energy crisis, Austria’s start-ups were able to raise significantly more in reported financing rounds in 2022.² While the number of reported financing rounds increased by 16 per cent, the amount of capital raised by start-ups decreased by some 18 per cent to just a little over €1 billion. It must be added that Austria’s VC transactions in 2022 were dominated by major financing rounds of one existing and one new Austrian unicorn GoStudent and TTTech Auto, which were responsible for more than 50 per cent of the reported transaction volume. In the first half of 2023, activity slowed down given the worldwide economic difficulties and uncertainties. Nevertheless, start-ups and scale-ups such as GROPUYS, neoom, Prewave, woom and hi.health were able to obtain VC funding of millions of euros, in each case in the first six months of the year.³

The most active VC investors in Austria still include Speedinvest, aws Gründerfonds, Calm/Storm Ventures, UNIQA Ventures and Apex Ventures. The Vienna-based VC fund Speedinvest remains one of the most active investors in the DACH region in 2022.⁴ Vienna counted the most establishments of Austrian start-ups, followed by the states of Lower Austria and Styria. In addition, Calm/Storm Ventures was predominant as an early stage European healthtech investor in 2022.⁵

Regarding raised funds, the most active industries by number of transactions in 2022 were software and analytics, e-commerce and healthcare. The most active industries by financing volume were mobility, edutech, and software and analytics. According to a survey conducted in late 2020, the most popular business models among start-ups in Austria were in the areas of software as a service, hardware, and IT and software development.⁶

Year in review

For some time now, negotiations have been conducted in Austria on a new company form for start-ups and tax benefits for employee incentive programmes. Finally, in 2023, two draft bills were published and went into parliamentary review, which ended in July 2023.

A new company form for start-ups (or at least more flexibility for the existing limited liability company) has long been a demand from start-up companies and it is part of the Government Programme 2020–2024. According to the draft bill, the new company form is called ‘Flexible Company’ (FlexCo) and is supposed to be a hybrid form between a limited liability company (GmbH) and a joint stock corporation (AG); it will be based on the Austrian Limited Liability Companies Act (GmbHG). The following are some of the most important changes to be introduced by FlexCo:

1. minimum share capital: the minimum share capital for a FlexCo and GmbH will be reduced to €10,000, of which at least €5,000 must be paid in. This change is intended to make it easier for start-ups to establish themselves in Austria;
2. flexible capital raising instruments: the FlexCo model allows for flexible capital raising instruments, including the issuance of shares authorised by the management, a privilege previously reserved for joint stock corporations. This change gives start-ups more options for raising capital and makes it easier for them to grow. It should also serve to increase legal certainty over alternative means of finance; and
3. employee participation: the proposed legislation aims to address employee incentives by introducing a special type of share in a FlexCo – the Company Value-Share (CVS). A CVS will not grant voting rights, but will provide a share in the company’s dividends and liquidation proceeds. CVS can represent up to 25 per cent of the share capital and can be issued for as little as one cent. This change is intended to make it easier for start-ups to attract and retain top talent.

Additionally, the government introduced a ministerial draft of the Start-up Promotion Act (Start-Up-Förderungsgesetz). The Act contains significant tax and corporate law measures aimed at promoting the startup industry in Austria. The primary objective of the Start-up Promotion Act is to address the issue of employee participation in start-ups. The new law aims to make share schemes more attractive by adjusting tax rates and conditions for their issuance. In the future, tax on the proceeds from employee incentive plans will only be due upon their sale, with 75 per cent of the value being taxed as capital gains at a fixed rate of 27.5 per cent and the remaining 25 per cent at the applicable income tax rates.

These legislative drafts are intended to make Austria more attractive to start-ups and venture capitalists from other jurisdictions. The FlexCo provides the flexibility needed to raise capital while being much less expensive to incorporate than a GmbH or joint stock corporation. The Start-up Promotion Act provides for the necessary tax changes to make employee participation schemes more effective and attractive. It is an exciting development in Austria’s start-up landscape and could help attract more investment and talent to the country. The new laws are not expected to take effect until the autumn at the earliest; note that, at the time of writing, intensive discussion is taking place on certain current changes. For instance, the FlexCo will require less notarisation steps, such as notarial deeds for share transfers, and disclaimers by lawyers or notaries will instead be sufficient. This is supposed to increase speed and transaction cost, but will also face heavy resistance, not only from notaries but also from other players who defend the concept of notarial acts as such being valuable and relevant in 2023.

Regarding transactions, start-ups in Europe and in Austria in 2022, compared to 2021, were not very good as deal volume decreased. While the number of financing rounds in Austria increased by approximately 16 per cent compared to 2021, from 122 to 141, the total value of financing rounds has decreased by 18 per cent from €1.23 billion to slightly over €1 billion. The number of larger and large deals with volumes of more than €10 million declined year-on-year: 16 deals with financing volumes above the €10 million mark were recorded in 2021, while only 10 were recorded in 2022.⁷ The largest (announced) financings of 2022 were secured by edutech company GoStudent with a Series D financing volume of €300 million. This was followed by TTTech Auto, an automotive software company, with a volume of €250 million; and Waterdrop, with a financing round of €60 million. In addition PlanRadar, a platform for documentation and communication in construction and real estate projects, received €60 million from investors and the logistics software start-up Byrd received €53 million.⁸

Legal framework for fund formation

i Fund structure

The main structures and legal entities typically used in the formation of VC funds in Austria are GmbH & Co KGs, that is, limited partnerships (Co KGs) with a GmbH as the general partner and manager of the fund.

GmbH & Co KG

Typically, investors become directly or (via a trustee) indirectly limited partners in a Co KG. The general partner is, in most cases, a GmbH that receives a fee for assuming unlimited liability and managing the fund. Typically, we see structures where the general partner directly manages the partnership, but we also see structures where the partnership is managed by a separate management company. As VC funds typically fall under the Alternative Investment Manager Act (AIFMG), which implements the Alternative Investment Fund Managers Directive, the company managing the fund must be a legal person licensed or registered as an alternative investment fund manager (AIFM) under the AIFMG.

GmbH

In the case of a GmbH, the investors become direct or (via a trustee) indirect shareholders of the GmbH. The GmbH is, by law, managed by at least one managing director who must be a natural person. However, in many cases, management activities will be outsourced (as far as legally possible) to a management company that must, in most cases, be a licensed or registered AIFM under the AIFMG. Compared to a partnership, a GmbH has minimum share capital requirements (€35,000, or €10,000 if the foundation privilege is applied).

ii Regulatory

Since the introduction of the AIFMG in Austria, most VC funds established in Austria qualify as alternative investment funds (AIFs) under the AIFMG. An AIF is a collective investment scheme managed by an AIFM.⁹ The term ‘alternative investment fund’ encompasses every collective investment undertaking, including its subfunds, that collects capital from a number of investors in order to invest it in accordance with a determined investment strategy for the benefit of its investors. It is important to note that such collected capital may not be directly used for an operational activity. Funds pursuant to the Austrian Investment Funds Act and funds qualifying under the Austrian Real Estate Investment Funds Act of 2011 are also classified as AIFs, but are exempted from the AIFMG.

The AIFMG differentiates between AIFMs subject to licensing before the Austrian Financial Market Authority (FMA) pursuant to Article 4(1) AIFMG and AIFMs subject only to registration with the FMA pursuant to Article 1(5) AIFMG. The main difference is that only selected provisions of the AIFMG (namely Articles 24 to 28, 56 and 60 AIFMG) apply to registered AIFMs, and therefore are subject to a reduced supervisory regime. The most notable restriction for registered AIFMs is that registered AIFMs are not allowed to market AIF units or shares to retail clients and are not allowed to provide cross-border management or marketing activities under the EU passporting regime of Directive 2011/61/EU. Licensed AIFMs may further conduct pre-marketing activities, subject to certain conditions (however, see ‘EuVECA Regulation’ below).

AIFMs that manage funds with assets of more than €100 million (with use of leverage) or more than €500 million (without use of leverage) are required to obtain a licence, otherwise registration is sufficient. If a licence is required, the AIFM must fulfil the following requirements to obtain it.

1. In the event that the AIFM is an internal manager of the AIF, the minimum capital requirement is €300,000 and in the event that the AIFM is an external manager of the AIF, the minimum capital requirement is €125,000. Apart from this requirement, an AIFM must always have enough equity to cover at least 25 per cent of its yearly running costs. If the funds managed by the AIFM exceed €250 million, the AIFM must have further equity pursuant to Article 7(3) AIFMG. These additional equity requirements correspond to 0.02 per cent of the amount by which the funds under management exceed the €250 million threshold. However, the additional equity requirement is capped at €10 million. The persons who are in charge of the management of the AIFM must be reliable and sufficiently experienced in regard to the investment strategies of the AIF managed by the AIFM. The AIFM has to appoint at least two individual persons as its managers.
2. In the application form, the AIFM must provide certain information listed in Article 5 of the AIFMG, including:
   • information on shareholders holding qualified participations in the AIFM (i.e., shareholdings exceeding 10 per cent);
   • its business plan;
   • its remuneration structure;
   • risk management;
   • its investment strategies;
   • valuation;
   • conflict of interest policies; and
   • information on the contractual basis pursuant to which the AIFM manages the AIF.

EuVECA Regulation

The EuVECA Regulation was initially introduced with the aim of creating a new pan-European designation for small AIFMs because, generally, they are prohibited from participating in cross-border marketing for their AIF. By registering an AIF as a EuVECA the AIFM may market the relevant AIF throughout the European Union to certain categories of investors defined in the EuVECA Regulation under the EU-wide passporting regime, based on its home state registration. To register a EuVECA, Austrian-based AIFMs must comply with the rules set out in the EuVECA Regulation and supply the FMA with certain information regarding themselves and their AIF.

The EuVECA Regulation is not compulsory for small AIFMs. However, if a small AIFM does not take advantage of this unified regime it must comply with national laws of each Member State of the European Union.

A manager of an EuVECA fund may engage in pre-marketing in the European Union subject to certain conditions.

iii Solicitation

The method of solicitation of potential new investors is mainly influenced by regulatory constraints. Generally, solicitation is made via an information memorandum. Potential key financial backers are regularly contacted at an early stage of the fund set-up phase to check their underlying interest, provided that there are no regulatory constraints (i.e., in case of public offerings falling under the scope of the Austrian Capital Markets Act). Often potential new investors are given the opportunity to do their own due diligence before investing, in particular where the ticket size exceeds a certain threshold. In addition, managers may appoint third-party promoters to assist in the fundraising process and identifying relevant investors for the fund.

Limitations on solicitation

Offers and sales of interest of Austrian-based VC funds are subject to the following selling restrictions, which generally depend on whether the VC funds manager is a licensed or registered AIFM.

1. Limitations for AIFs managed by a licensed AIFM:
   • interests in the VC fund may be offered or sold only after the AIF is approved by the FMA; and
   • interests in the VC fund may be offered or sold to private investors, if the requirements of Articles 48 and 49 AIFMG are fulfilled, except if the VC fund is registered as an EuVECA; in such a case, interests in the fund may be offered or sold to private investors subject to certain restrictions (in particular, a minimum ticket size of €100,000 and a written acknowledgement by the private investor regarding the associated risks).
2. Limitations for AIFs managed by a registered AIFM:
   • interests in the VC fund may be offered or sold only after the AIF was registered with the FMA; and
   • interests in the VC fund may not be offered or sold to private investors, except if the VC fund is registered as an EuVECA; in such a case, interests in the fund may be offered or sold to private investors subject to certain restrictions (in particular a minimum ticket size of €100,000 and a written acknowledgement by the private investor regarding the associated risks).

For licensed AIFMs and managers of EuVECA funds, pre-marketing rules apply.

iv Disclosure of information

As a general rule, and to prevent court proceedings by private investors against managers of VC funds, there should always be a full disclosure to investors at the time of their investment into a VC fund. Particular care should be taken when disclosing to retail investors as, in general, Austrian courts also consider whether the disclosed information is addressed to private investors or solely to institutional investors. In the latter case, they tend to be less restrictive.

Nevertheless, it is the VC fund manager’s obligation to ensure that all documents (i.e., offering and marketing information) provided to potential new investors disclose all relevant facts and circumstances fully and correctly to allow a potential new investor to make a reasonable decision on whether to invest or not. This means that any opinions or future projections should be based on verifiable facts. In addition, the documents disclosed to potential new investors should be drafted in an understandable manner (i.e., not too technical) otherwise the information may be deemed not sufficiently disclosed.

If the court deems the documentation to have been insufficiently disclosed, the managers of the VC fund may face damage claims by investors. In addition, under certain circumstances regulatory sanctions may apply.

Provided that the offer of the VC fund interest falls under the scope of the Austrian Capital Markets Act (which is generally the case as interest in Austrian VC funds is partnership interest or shares in Austrian limited liability companies) and no private placement exemption applies, the issuer has to prepare a prospectus complying with the Austrian Capital Markets Act. The main items for disclosure are as follows:

1. investment strategy;
2. market overview and regulatory environment;
3. key terms of the investment;
4. risk factors;
5. track record of the manager and its executives; and
6. tax matters.

If the offer encompasses VC fund interests with a total value of less than €5 million during 12 months, a simplified prospectus can be used or if it is less than €2 million during 12 months, the disclosure obligations of the Austrian Alternative Financing Act apply.

Fund agreements

The key terms of the relationship between investors and the VC fund are governed by the limited partnership agreement in the case of a GmbH & Co KG or the articles of association and shareholders’ agreement in the case of a GmbH. In any case, these agreements must include all mandatory investor protection provisions of the AIFMG, if the VC fund is classified as an AIF.

The terms of a VC fund typically subject to heavy negotiation include:

1. leaver provisions or key man clause, and change of control provisions;
2. changes to management and permitted side activities of partners;
3. implementation, composition and competences of an investment committee;
4. equalisation payments by late investors;
5. extension of the fund’s term;
6. co-investment rights for Co KGs;
7. management fee and cost coverage; and
8. carried interest provisions.

Fund management

VC funds established as AIFs and their managers are subject to the ongoing supervision of the FMA. The FMA has a wide range of inspection, information and audit rights with respect to both the AIFM and the individual AIFs.

i Information obligations with regard to investors

For each AIF the AIFM manages and for each AIF it markets in the European Union, the AIFM must, on a regular basis and at least annually, inform investors of the following:

1. the percentage of the assets of the AIF that are difficult to liquidate and therefore are subject to special rules;
2. any new arrangements for managing the liquidity of the AIF; and
3. the current risk profile of the AIF and the risk management systems employed by the AIFM to manage those risks.

In addition, AIFMs managing AIFs that use leverage or market AIFs that use leverage in the European Union have to disclose the following information for each of those AIFs, on a regular basis and at least annually, in accordance with the relevant provisions of the relevant agreements or articles of association:

1. any changes to the maximum extent to which the AIFM may use leverage on behalf of the AIF and any rights to reuse collateral or other guarantees provided under the leverage; and
2. the total amount of leverage of the relevant AIF.

Apart from this, the AIFM may be contractually obliged to provide investors with certain information on the funds’ assets and activities, including information required for taxation purposes.

ii Information obligations with regard to the authorities

The AIFM has to regularly inform the FMA about the most important markets and instruments on or with which it trades for the account of the AIF it manages. The AIFM further has to provide information on the main instruments in which it trades, on the markets in which it is a member or actively trades and on the largest exposures and concentrations of each AIF it manages.

The AIFM has to submit the following to the FMA for each AIF it manages and for each AIF it markets in the EU on a regular basis:

1. the percentage of the assets of the AIF that are difficult to liquidate and therefore are subject to special rules;
2. any new arrangements for managing the liquidity of the AIF;
3. the current risk profile of the AIF and the risk management systems used by the AIFM to manage market risk, liquidity risk, counterparty default risk and other risks, including operational risk;
4. information on the main categories of assets in which the AIF has invested; and
5. the results of the stress tests carried out pursuant to Articles 13 and 14 AIFMG.

In addition, upon request by the FMA, the AIFM must submit the following documents to the FMA:

1. an annual report on each AIF managed by the AIFM and on each AIF marketed by it in the European Union for each financial year; and
2. at the end of each quarter, a detailed list of all AIFs managed by the AIFM.

Apart from this, in the event that an AIF, alone or jointly, acquires control over an unlisted company or issuer in accordance with the AIFMG, the AIFM managing the AIF in question must disclose this fact to the unlisted company or issuer concerned and the FMA.

iii Ancillary activities of an AIFM that is an internal manager of an AIF

An internally managed AIF cannot engage in any other activity other than the internal management of that AIF.

iv Ancillary activities of an AIFM that is an external manager of an AIF

An external AIFM may not engage in any activities other than those listed in Annex 1 to Article 4 AIFMG and the additional management of undertakings for the collective investment in transferable securities subject to a licence for investment fund business pursuant to Article 1(1), Item 13 of the Austrian Banking Act in conjunction with Article 6(2) of the Austrian Investment Fund Act of 2011.

In addition, the FMA may grant a licence to an external AIFM to provide the following services:

1. individual management of individual portfolios, including those held by pension funds and institutions for occupational retirement provision, in accordance with Article 19(1) of Directive 2003/41/EC and in line with discretionary individual mandates given by investors; and
2. as ancillary services:
   • investment advice;
   • custody and technical administration relating to units in collective investment undertakings; and
   • reception and transmission of orders concerning financial instruments.

Raising capital by start-ups

i Public funding in Austria

Financing is one of the most important issues involved in founding and growing a start-up. For this reason, Austria offers a comprehensive system of public funding. The offering of public funding in Austria is very diverse and well received by the start-up community. The most important funding sources in Austria are the Austrian Research Promotion Agency and Austria Wirtschaftsservice GmbH. They offer non-repayable grants, guarantees or subsidised loans.

ii Private funding in Austria

Most start-ups traditionally collect their first funds for their business ideas from friends and family and public sources.

The first private funding is typically structured as a convertible investment (i.e., a convertible loan or forward equity). The main difference between these two instruments is that convertible loans include a repayment obligation (which is waived in the course of conversion into equity) while forward equity instruments are a prepayment on shares to be issued in the future at a predefined event (e.g., a qualified financing round). In both cases, the commercial terms for conversion or issuance, in particular the valuation of the start-up, are derived from the next (qualified) financing round.

Convertible loans are generally subordinated and bear interest (which is typically waived in the event of conversion or converted into equity). The issue price for the shares in the event of conversion is typically not locked in at signing of the convertible instrument, but depends on the issue price of the next (qualified) financing round and provides for a discount (to reflect the fact that the money invested was at risk for a longer period of time compared to the investors in the financing round). The same applies for forward equity agreements, which become more and more popular in Austria, except that these do not bear any interest and are not repayable.

After successfully steering through the pre-seed phase of a start-up, Austria’s typical start-ups regularly obtain financing for the most part through VC that is being provided by numerous business angels, VC funds and corporate VC investors.

Most Austrian start-ups are incorporated as limited liability companies. As such, there are generally two options for investors wishing to invest in an Austrian start-up. One way is to purchase shares from its existing shareholders (and contribute the investment amount into the company via a shareholder contribution) and the other way is to subscribe for newly issued shares in the start-up by way of a cash capital increase. Both are common methods; however, investments through cash capital increases are more common. The purchase of shares in a start-up from existing shareholders generally comes into play at later stages for the purpose of cap table clean-ups, where larger investors usually allow smaller investors to exit their investments.

A traditional Austrian start-up VC round consists of the following documentation:

1. confidentiality agreement;
2. term sheet;
3. investment agreement that governs the legal framework of the investment of the investors into the company, including:
   • the terms of the increase in the share capital of the company;
   • conversion of existing investments or delivery of shares in return of existing investments, respectively;
   • changes to or the restatement of the articles of association and shareholders’ agreement relating to the company;
   • warranties and indemnities (including ancillary legal provisions, such as remedies, limitations and exclusions, and share compensation mechanics); and
   • miscellaneous provisions;
4. shareholders’ agreement governing, inter alia:
   • voting behaviour in resolutions of the company;
   • rights, obligations and restrictions in the transfer of shares in the company;
   • drag-along and tag-along rights relating to the shares of the company;
   • information rights;
   • subscription rights and liquidation preferences;
   • corporate governance rules;
   • non-compete obligations;
   • vesting rules; and
   • other recurring or non-recurring rights and obligations relating to the investors participation in the company and other provisions of the agreement (such as term and termination);
5. the rather technical capital increase documentation (i.e., shareholders’ meeting, subscription and accession declaration and commercial register application);
6. amended or restated articles of association;
7. IP transfer deeds;
8. director agreements for the founding directors; and
9. employee incentive programmes.

If the investor is purchasing shares from existing shareholders (e.g., in a secondary transaction), the transaction will be governed by a share purchase agreement.

In both cases, the involvement of a notary is necessary, as any dispositions of shares and regulations concerning them require a notarial deed and notarial protocols or certifications.

In terms of share classes, Austrian corporate law generally recognises only one share class, namely that of common shares. However, Austrian law allows classification of shares in the company on a contractual basis into different share classes (e.g., common shares and preferred shares). Typically founders of a start-up just hold common shares while any new investors in a given financing round receive a new preferred share class that is more senior than any other share class issued before (e.g., Series A preferred shares, Series B preferred shares). Liquidation preferences and voting rights are, inter alia, typically linked to a given share class.

The acquisition of shares in a financing by non-EU/EEA investors may be subject to regulatory scrutiny under the Austrian Foreign Direct Investment Screening Act (ICA). The ICA largely transposes the requirements of the EU Foreign Direct Investment Screening Regulation, and therefore a mandatory filing requirement is triggered if:

1. a foreign investor (i.e., a non-EU, non-EEA or non-Swiss individual or entity), intends to directly or indirectly invest in an Austrian undertaking to acquire shares reaching or exceeding 10, 25 or 50 per cent of the voting rights in order to acquire control of all or essential assets of the undertaking;
2. the undertaking is active in a sector listed in an annex of the ICA; and
3. the undertaking has its seat or its central administration in Austria (local nexus).

Start-ups (defined as undertakings with fewer than 10 employees and an annual turnover or balance sheet totalling less than €2 million) do not require such approval; however, in practice, this exemption rarely applies since most start-ups exceed at least one of these thresholds at the time of the exit.

Critical infrastructure, including IT, is one of the sectors listed in the annex of the ICA. The competent authority tends to interpret the scope very broadly. Most start-up investments leading to shareholdings in excess of the thresholds described above are thus considered notifiable under the ICA if the acquirer is a non-EU/EEA investor.

iii Crowdfunding under the Alternative Financing Act

Austrian start-ups can finance their business idea through crowdfunding under the Alternative Financing Act (AltFG), which has become a popular choice in the past few years. For product-driven business ideas in particular, crowdfunding is a great way to test whether the product will be well accepted by the community. In crowdfunding, many donors participate in a company with comparatively small amounts or lend money to companies. Depending on the model, both equity and debt instruments are used in crowdfunding. Financing is usually handled via crowdfunding platforms on the internet.

If securities or investments with a total value of less than €2 million are issued in each case within 12 months, they are generally subject to the AltFG, while those above this amount are subject to the Austrian Capital Markets Act. This is summarised below.

1. If the value is less than €250,000 within 12 months, there are no information or prospectus obligations for securities or investments.
2. If the value is between €250,000 and €2 million within 12 months, the information sheet must be prepared for both securities and investments in accordance with the Alternative Financing Information Ordinance (AltF-InfoV). The information sheet is intended to help potential investors obtain comprehensive information about the crowdfunding project. In addition, further information (including the opening balance sheet or annual financial statements) must be provided.
3. If the value is €2 million or more within 12 months, the Austrian Capital Markets Act is applicable and a prospectus must be prepared.

In each case, securities and investments must be added together separately. In addition to the obligation to provide the information sheet pursuant to the AltF-InfoV, the AltFG contains numerous other provisions on investor protection. For example, an issuer may only accept a maximum of €5,000 per issue from a single investor within 12 months (under certain circumstances, however, this limit may be exceeded).

Crowdfunding platforms on the internet are only allowed to broker alternative financial instruments if they have the appropriate authorisation to do so.

Independent of the above, the European Crowdfunding Service Providers Regulation entered into force on 9 November 2020 and became effective in November 2021. It is the first EU-wide legal framework for crowdfunding.

Exit

Typically, trade sales or secondary buyouts are used as exits for investments in successful companies in Austria. Exit by a trade sale to a strategic investor is still the predominant strategy for successful VC investments. If there is a secondary buyout, it is typically a management buyout.

Such exit strategies are regularly anticipated in the investment documentation of a start-up. There are often provisions stating that the investors are entitled to initiate an exit procedure, either by exercising drag-along rights in the event of a share sale, or on the basis of explicit entitlements to initiate an initial public offering (IPO) or an M&A process.

Exits to non-EU/EEA buyers are subject to regulatory scrutiny under the ICA. The ICA largely transposes the requirements of the EU Foreign Direct Investment Screening Regulation, and therefore a mandatory filing requirement is triggered if:

1. a foreign investor (i.e., a non-EU, non-EEA or non-Swiss individual or entity) intends to directly or indirectly invest in an Austrian undertaking to acquire shares reaching or exceeding 10, 25 or 50 per cent of the voting rights in order to acquire control of all or essential assets of the undertaking;
2. the undertaking is active in a sector listed in an annex of the ICA; and
3. the undertaking has its seat or its central administration in Austria (local nexus).

Start-ups (defined as undertakings with fewer than 10 employees and an annual turnover or balance sheet totalling less than €2 million) do not require such approval; however, in practice, this exemption rarely applies since most start-ups exceed at least one of these thresholds at the time of the exit.

Critical infrastructure, including IT, is one of the sectors listed in the annex of the ICA. The competent authority tends to interpret the scope very broadly. Most start-ups investments leading to shareholdings in excess of the thresholds described above are thus considered notifiable under the ICA if the acquirer is a non-EU/EEA investor.

Given the lower threshold, the ICA notification requirements may also be triggered in financing rounds, in particular since voting rights of foreign investors, who acquire the voting rights, are counted together if they are acquired in the course of a ‘joint’ transaction.

Special purpose acquisition company transactions

Transactions involving a special purpose acquisition company (SPAC) became very popular in Europe and internationally in 2020 and 2021. A SPAC is an empty shell company that raises capital in an IPO to acquire one or more operating companies. The industry and region are predefined and SPACs have no business operations until a target company is acquired.

The interest in SPAC transactions has not been felt in Austria compared to internationally. In Austria, SPAC transactions seem to have lost their appeal.

Outlook

The government’s plan to modernise Austrian corporate law and help start-ups, by introducing a new legal form of company and adjusting the tax environment for employee participation programmes, has finally been set in motion. It is expected that these efforts will ease pain points in establishing start-ups, raising funds and incentivising employees.

Given global economic issues, it remains to be seen how VC investments will develop in 2023. Deal volume is not expected to reach the peak of 2021 or the amount of 2022, but attractive targets may potentially be reached from now until the end of the year.