What is an ABACO?
The Basic Purchase Shares Agreement (“ABACO”) is an option contract between an investor and a startup that gives the investor the right, in exchange for a capital contribution, to become a shareholder of the startup in the future.
Avalancha Ventures designed ABACO with and for its entrepreneurs and has published it in the public domain for the benefit of the entire entrepreneurial ecosystem. ABACO operates under Mexican law.
What are its most important characteristics?
- The startup and the investor keep record of a capital contribution in a simple and agile way.
- The startup can obtain financing with different investors at different times, without altering the capital structure of the company in each financing.
- The valuation of the startup startup is postponed until the moment when there is more evidence regarding the direction of the company and, therefore, it becomes a fair financing mechanism for both investors and entrepreneurs.
- In accounting terms it qualifies within the capital accounts, which is consistent with the nature of the long-term investment.
- It has no expiration date or interest rate, which takes pressure off the startup.
- Keeps the startup´s share structure simple when the uncertainty regarding its success is still very high, significantly facilitating the tasks of a possible bankruptcy and / or liquidation process.
- Significant legal savings, when using standard documentation.
Does ABACO resemble a standard international document?
The ABACO is based on the SAFE of Y Combinator and the KISS of 500 Startups, which work for the United States market. The ABACO works and is designed for the Mexican market.
Are there any other financing mechanisms to finance startups?
In addition to ABACO, the most widely used instruments are convertible notes and capital contributions through the sale of shares.
How do the different financing mechanisms compare?
|Easy and agile documentation||YES||YES||NO|
|Flexibility to obtain ongoing financing||YES||YES||NO|
|Valuation is postponed in the future when there´s more information||YES||YES||NO|
|The instrument has no expiration date||YES||NO||YES|
|The instrument has no interest rate||NO||YES||NO|
|Simple share structure for the startup||YES||YES||NO|
|Minimization of legal costs||YES||YES||NO|
|Investor is shareholder of the startup||NO||NO||YES|