How To Raise Money for a Project (modern ways of investing)

Are you a foreign investor or a company looking to finance a project in the Czech Republic? Understanding modern fundraising methods like venture capital or crowdfunding is essential, but navigating the specific Czech and EU legal landscape is critical for success. This guide provides clear, practical answers from our English-speaking lawyers in Prague, explaining how to raise capital effectively while managing legal risks. As a leading Czech law firm in Prague, EU, we specialize in guiding international clients through these complex processes.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by Mgr. Jan Pavlík, an expert on the subject.

The New Era of Project Financing: Your Options in the Czech Republic

Traditionally, businesses relied on bank loans to fund their projects. However, for innovative, high-growth, or cross-border ventures, this path is often restrictive. Modern financing methods offer greater flexibility and access to "smart money"—capital combined with strategic expertise. The Czech Republic, as a dynamic and stable EU economy, has a rapidly maturing market for these alternative investments.

This evolution presents a significant opportunity for foreign companies. The rise of sophisticated investment options like crowdfunding, venture capital, and private equity indicates a market with a growing supply of high-potential projects and a strong investor appetite to fund them. Understanding these methods is the first step toward securing the capital your project needs to thrive.

Crowdfunding Your Czech Venture: What Are the Rules?

Crowdfunding allows you to raise capital by collecting small amounts of money from a large number of people, typically via an online platform.3 For businesses, two models are particularly relevant.

Understanding the Models: Equity vs. Debt Crowdfunding

Equity crowdfunding involves selling a small ownership stake—shares or an equivalent interest—in your company to your backers. In return for their money, investors become part-owners and share in your company's future profits or losses. This is a powerful way to raise significant capital without taking on debt, but it means diluting your ownership.

Debt crowdfunding, also known as peer-to-peer (P2P) lending, is essentially a loan from a crowd of individuals instead of a single bank. You borrow money and agree to pay it back with interest over a set period. This allows you to retain full ownership of your company, but you will have a repayment obligation regardless of your project's success.

FAQ – Legal tips about crowdfunding

• Do I need a prospectus for my equity crowdfunding campaign?
  Generally, no. Under the harmonized EU regulation, offers below EUR 5 million are exempt from the burdensome Prospectus Regulation requirements. However, preparing a compliant Key Investment Information Sheet (KIIS) is mandatory. ARROWS can ensure your KIIS meets all legal standards. Contact us at office@arws.cz.
• Can my UK-based company raise funds on a Czech platform?
  Yes, the EU regulation facilitates cross-border crowdfunding. However, your company must still comply with all local Czech corporate laws and disclosure rules when targeting investors here. Our lawyers can guide you through the cross-border requirements – email us at office@arws.cz.
• What happens if the information in my KIIS is misleading?
  You could face significant legal liability to investors for any losses they suffer as a result of misleading, inaccurate, or incomplete information. It is crucial to have the KIIS professionally drafted and reviewed by legal experts. For a comprehensive legal review, write to us at office@arws.cz.

The Legal Framework in the Czech Republic: Navigating EU Regulation

The era of unregulated crowdfunding in the Czech Republic is over. The market is now governed by a single, harmonized set of rules: the EU Crowdfunding Regulation (2020/1503). This is highly beneficial for foreign investors, as it creates a predictable and secure legal environment across the entire European Union.

Key provisions you must know include:

• Fundraising Cap: The regulation applies to crowdfunding offers up to a total of EUR 5 million per project owner over a 12-month period.
• Covered Services: It specifically regulates investment-based crowdfunding (issuing securities like shares or bonds) and credit-based crowdfunding (lending) for business purposes.
• Licensed Platforms: All crowdfunding platforms must be authorized by their national competent authority. This creates a much safer environment for both project owners and investors.

The Role of the Czech National Bank (CNB) and Investor Protection

In the Czech Republic, the supervisory authority responsible for enforcing the EU Crowdfunding Regulation is the Czech National Bank (CNB). The CNB authorizes and supervises crowdfunding platforms, ensuring they comply with strict rules on transparency, conflict of interest, and investor protection.

A cornerstone of this investor protection framework is the Key Investment Information Sheet (KIIS). This is a mandatory document, limited to six pages, that project owners must prepare for every campaign. It must provide investors with clear, concise, and non-misleading information about the project, the risks, the securities or loan terms, and the project owner. The project owner is legally responsible for the accuracy of the KIIS, making professional legal drafting and review essential.

Navigating Crowdfunding Regulations in the Czech Republic

Risks and Penalties	How ARROWS Helps
Operating an unlicensed platform: Fines up to CZK 13,230,000 (approx. EUR 530,000) or 5% of turnover for legal entities.	Help with regulatory approvals: Need assistance with CNB licensing for your platform? Write to office@arws.cz.
Inaccurate or incomplete KIIS: Civil liability to investors for losses incurred; severe reputational damage and potential regulatory action from the CNB.	Drafting legally required documentation: Let us prepare your KIIS to ensure full compliance and minimize liability. Contact us at office@arws.cz.
Breaching marketing and communication rules: The CNB can suspend or prohibit your offering, halting your fundraising campaign and freezing your access to capital.	Legal consultations to prevent penalties: Want to understand your legal obligations for marketing your offer? Email us at office@arws.cz.
Failure to meet Anti-Money Laundering (AML) obligations: Substantial fines, bans on activity, and potential criminal investigation for management.	Preparation of internal company policies: We draft robust AML policies tailored for crowdfunding projects. Get immediate assistance at office@arws.cz.

 

Securing Venture Capital (VC) and Angel Investment in Prague

For startups and companies with high-growth potential, securing investment from angel investors or venture capital funds is often the primary goal. This "smart money" provides not only capital but also invaluable mentorship, industry connections, and strategic guidance.

The Smart Money: Differentiating Angels from VCs

Angel Investors are typically wealthy individuals who invest their own personal funds into early-stage businesses in exchange for equity. They often invest based on their industry expertise and personal belief in the founders. Their investment amounts are generally smaller than those from VCs, but they are often the first external capital a startup receives.

Venture Capital (VC) firms are institutional investors that manage a pool of capital from various limited partners (such as pension funds or endowments). They invest in a portfolio of startups and scale-ups that demonstrate the potential for exponential growth. VC investments are typically larger and occur in structured funding "rounds".

The Venture Capital Journey: From Seed to Series C

VC financing follows a structured path aligned with a company's maturity. Understanding these stages is crucial for knowing when to seek funding and what investors will expect.

• Pre-Seed and Seed Stage: This is the earliest stage, where funding is used for market research, developing a minimum viable product (MVP), and building the founding team. The goal is to prove the business concept.
• Series A: At this stage, your company has a proven product, a clear business model, and some initial customer traction. Series A funding is used to optimize the product, scale operations, and expand the customer base.
• Series B and C: These later-stage rounds are focused on aggressive growth. The capital is used to expand into new markets, acquire competitors, and build out the team to meet rising customer demand.

The Legal Blueprint: Your Czech Company Structure and the Term Sheet

To accept equity investment from a VC or angel, you need the right corporate structure. In the Czech Republic, the most common forms are:

• Společnost s ručením omezeným (s.r.o.): A limited liability company. With a minimum capital requirement of just CZK 1, it is flexible and ideal for early-stage companies.
• Akciová společnost (a.s.): A joint-stock company. This structure is more complex but is better suited for larger investments and future growth, as its shares are more easily transferable. It requires a minimum capital of CZK 2,000,000.

Once an investor is interested, the first legal document you will encounter is the Term Sheet. This is a non-binding document that outlines the fundamental terms of the investment. It covers critical points like company valuation, the investment amount, and the rights the investor will receive. Key legal terms to understand include liquidation preference, which dictates who gets paid first in an exit, and anti-dilution provisions, which protect investors if the company issues shares at a lower price in the future.

A Critical Hurdle for Foreign Investors: Czech FDI Screening

For any non-EU investor, including those from the UK, US, or Switzerland, a critical piece of Czech legislation must be considered: the Act on the Screening of Foreign Investments (No. 34/2021 Coll.). This law is designed to protect the national security and public order of the Czech Republic.

The definition of a "foreign investor" is broad, covering any person or company from a non-EU country, or even an EU-based company that is ultimately controlled by a non-EU entity. A transaction triggers scrutiny if the foreign investor gains "effective control," which is defined as:

• Acquiring 10% or more of the voting rights;
• Becoming a member of a corporate body (e.g., a director); or
• Gaining access to sensitive information, systems, or technologies.

For investments in highly sensitive sectors—such as military material, critical infrastructure (including energy and communication systems), or dual-use technologies—a mandatory screening and prior approval from the Ministry of Industry and Trade is required. Crucially, even for investments in non-sensitive sectors, the Ministry has the power to review the transaction ex-officio for up to five years after its completion. This creates significant uncertainty that can only be mitigated through proactive legal consultation.

Our international law firm operating from Prague, European Union, has extensive experience advising clients on FDI screening compliance.

Key Legal Risks in a VC Investment Round

Risks and Penalties	How ARROWS Helps
Transaction prohibition under FDI screening: A non-EU VC deal is blocked by the Ministry, causing the entire funding round to collapse and wasting months of effort.	Legal opinions on FDI compliance: We assess your transaction and can represent you in voluntary consultations with the Ministry to secure legal certainty. Need an FDI review? Write to office@arws.cz.
Unfavorable Term Sheet clauses (e.g., participating liquidation preference): Founders may receive little to no money from an exit, even if the company is sold for millions.	Contract review and negotiation: We analyze and negotiate term sheets to protect your ownership and financial interests. Contact us for a review at office@arws.cz.
Improper share issuance or flawed cap table: Future funding rounds are jeopardized, and the company may face legal disputes over ownership, deterring new investors.	Drafting legally required documentation: We ensure all corporate resolutions and share transfers are legally sound and properly registered. Email us at office@arws.cz.
Breach of warranties in the Share Purchase Agreement: Founders can be held personally liable for undisclosed company problems, leading to devastating financial claims against them.	Representation in negotiations: We protect you by negotiating limitations on warranties and liabilities in the final investment agreements. Get legal help at office@arws.cz.

 

Scaling with Private Equity (PE): Growth Capital for Established Businesses

For mature, profitable companies looking to expand, restructure, or finance a major acquisition, Private Equity (PE) is a powerful financing tool. Unlike VCs, PE firms typically invest in established businesses rather than startups.

When is Private Equity the Right Choice?

PE investment is suitable when a company has a proven business model, strong cash flows, and a solid management team. Common PE strategies include:

• Buyouts: Acquiring a majority or controlling stake in a company, often to restructure its finances or operations to unlock value.
• Growth Equity: Taking a minority stake in a company to provide capital for expansion, such as entering new markets or launching new product lines.

PE firms operate on a long-term cycle of fundraising, investing in a portfolio of companies, actively managing them to increase their value, and ultimately "harvesting" returns by selling their stakes through an IPO, strategic sale, or secondary buyout.

The Investor's Scrutiny: Preparing for Due Diligence

Before a PE firm invests, it will conduct an extremely thorough investigation of your company known as due diligence. This process is designed to verify all your claims and uncover any potential risks. The due diligence process in the Czech Republic can be particularly challenging because the disclosure of information is often heavily controlled by the seller, leaving buyers with limited independent sources to verify issues like litigation or regulatory compliance.

Key areas of focus include:

• Legal Due Diligence: Review of all contracts, corporate documents, permits, IP rights, and pending litigation.
• Financial Due Diligence: A deep audit of financial statements, revenue streams, and cost structures.
• Commercial Due Diligence: Analysis of the market, competitive landscape, and customer base.

FAQ – Legal tips for due diligence

• What is a "virtual data room"?
  It is a secure online portal where you upload all your company's sensitive documents for the investor's team to review. A well-organized data room signals professionalism and transparency. ARROWS can help you structure your data room to streamline the due diligence process. For assistance, email us at office@arws.cz.
• How can I protect my company's confidential information during due diligence?
  Before granting access to any information, you must have a robust Non-Disclosure Agreement (NDA) in place. This legally binding contract prevents the potential investor from misusing your confidential data. We can draft or review an NDA to ensure your trade secrets are fully protected. Contact us at office@arws.cz.
• What are the biggest red flags for investors during legal due diligence?
  Common red flags include an unclear ownership structure (cap table), unresolved litigation, non-compliance with environmental or labor regulations, and poorly drafted commercial contracts. ARROWS can perform a pre-deal legal audit to identify and help you resolve these issues before they derail your transaction. Write to us at office@arws.cz.

Mitigating Risks in Private Equity Transactions

Risks and Penalties	How ARROWS Helps
Due diligence red flags halting the deal: The transaction collapses late in the process due to unresolved legal or compliance issues, wasting significant time and money.	Legal opinions and due diligence support: We conduct a vendor due diligence to prepare your company for scrutiny and manage the data room effectively. Need help preparing for a sale? Write to office@arws.cz.
Violation of merger control regulations: The transaction is blocked or subject to heavy fines by Czech or EU competition authorities for failure to notify a qualifying merger.	Representation before public authorities: We handle all necessary merger control filings with the relevant competition authorities. Contact us at office@arws.cz.
Unfavorable Share Purchase Agreement (SPA): The seller is exposed to excessive long-term liabilities through broad warranties and indemnities, putting sale proceeds at risk.	Contract drafting and review: Our M&A lawyers negotiate SPAs to limit your post-closing risks and secure your financial exit. Email us for a consultation at office@arws.cz.
Tax inefficiencies in the deal structure: A poorly structured deal can lead to a significant loss of proceeds to avoidable taxes upon exit, reducing your net return.	Legal and tax structuring: We collaborate with leading tax advisors to design the most efficient transaction structure for you. Get tailored legal solutions by writing to office@arws.cz.

 

How ARROWS Provides a Secure Legal Foundation for Your Investment

Navigating the complexities of fundraising in the Czech Republic requires more than just a great business idea—it requires a solid legal foundation. At ARROWS, we provide the specialized legal support that foreign investors and companies need to secure capital safely and efficiently. Our firm supports over 150 joint-stock companies and 250 limited liability companies, leveraging this deep experience to protect your interests.

Our services are designed to address the specific challenges discussed in this guide:

• Drafting legally required documentation: We prepare everything from compliant Key Investment Information Sheets (KIIS) for crowdfunding to robust Share Purchase Agreements (SPAs) for PE deals.
• Contract drafting or review: We meticulously analyze and negotiate Term Sheets and investment agreements to ensure the terms are fair and protect your long-term interests.
• Representation before public authorities: We represent clients before the Czech National Bank (CNB) for crowdfunding platform licensing and before the Ministry of Industry and Trade for Foreign Direct Investment (FDI) screenings.
• Legal opinions: We provide clear legal opinions on complex matters, such as whether your investment is subject to mandatory FDI screening, giving you the certainty needed to proceed.
• Preparation of internal company policies: We help you establish compliant internal procedures for everything from AML to data protection, preventing future fines and penalties.

With a presence in 90 countries through our ARROWS International network, built over 10 years, we combine deep local knowledge with a global perspective, making us the ideal partner for your cross-border transactions.

Your Next Step to Successful Funding in the Czech Republic

The Czech Republic offers a vibrant and growing market for innovative projects and ambitious companies. While the legal landscape for modern financing is complex, it is also structured, predictable, and fully aligned with EU standards, creating a secure environment for investors. With the right legal partner, you can navigate these regulations confidently and focus on what you do best: building your business.

Don't let legal complexity stand in the way of your project's success. Our lawyers are ready to provide the clear, practical guidance you need to secure funding and thrive in the Czech market. Contact our team at our law firm based in Prague, European Union, for immediate assistance. Get tailored legal solutions by writing to office@arws.cz.

FAQ – Most common legal questions about raising capital in the Czech Republic

• As a non-EU investor, what is the single biggest legal risk I face in the Czech Republic?
  The biggest risk is undoubtedly the Foreign Direct Investment (FDI) screening regime. An investment can be reviewed and potentially blocked or unwound if it is deemed a security risk, and the threshold for triggering a review is low (e.g., a 10% stake). Proactive legal assessment is crucial. Our lawyers can assess your risk profile – email us at office@arws.cz.
• Is an s.r.o. or an a.s. better for raising foreign capital?
  It depends on your stage and goals. An s.r.o. (limited liability company) is highly flexible and cost-effective for early-stage angel or seed rounds. An a.s. (joint-stock company) is more suitable for larger, later-stage VC rounds and for companies planning an eventual IPO, as its shares are easier to transfer. Get tailored advice on your corporate structure by writing to office@arws.cz.
• What are the tax implications of selling my shares in a Czech company?
  For individuals, gains from the sale of shares can be tax-exempt after a holding period (three years for shares in an a.s., five years for an interest in an s.r.o.). However, as of 1 January 2025, this exemption is capped at an income of CZK 40 million per year. Proper tax and legal structuring from the outset is crucial. For a legal consultation to optimize your structure, contact our firm – office@arws.cz.
• How does Czech law protect minority investors?
  Czech and EU corporate law provide significant protections for minority shareholders. These include the right to receive key company information, the right to participate in general meetings, the right to a share of profits, and the ability to legally challenge decisions made by the majority that are harmful to the company. We can help you understand and enforce your rights. Our lawyers are ready to assist you – email us at office@arws.cz.
• Can ARROWS help me connect with potential investors or business partners?
  Yes. With a client base of over 400 active companies and a global network spanning 90 countries, we are well-positioned within the Czech business ecosystem. Where we see mutual interests and synergies, we often facilitate valuable business and investment connections for our clients. To discuss your project, do not hesitate to contact our firm – office@arws.cz.
• How long does it typically take to set up a company and start fundraising?
  With expert legal guidance, a standard s.r.o. can be established in a matter of days. The fundraising timeline depends more on your business readiness—your pitch, business plan, and team. We can accelerate the process by preparing all necessary legal documentation in advance so you are "due diligence ready" from day one. Need legal help to get started? Contact us at office@arws.cz.

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