“I almost lost a billion,” admits Nešetřil, co-founder of the startup Apiary, which was sold to technology giant Oracle in 2017. Although the amount was not officially disclosed, according to insider information it could have been around the $100 million mark, or two billion crowns. However, this particular deal may not have gone through at all due to a seemingly small mistake.
Nešetřil founded Apiary in 2011 together with Jan Moravec and, on the advice of their investors, they chose the headquarters in the United Kingdom, which was still part of the European Union at the time. “And a few years later, American investors convinced me to establish a parent company in America and have the shares swapped,” he describes in a video published on YouTube by the non-profit organization Czech Founders, which supports local startup founders.
For the so-called Delaware flip (when a startup creates a parent company in this American state and transfers its assets there), Apiary reportedly hired the best lawyers they could find in London and San Francisco, and they also officially established a branch in the Czech Republic. A few years later, they felt that they were not using the British company for any purpose, so the authorities requested its removal from the commercial register.
https://www.youtube.com/watch?v=sl_HJPr4xGk
It was a small act, but with far-reaching consequences. When Apiary was later sold to Oracle, during due diligence and analysis of the legal documents, the buyer came to the conclusion that the aforementioned Delaware flip was not retrospective in terms of intellectual property. “The first three years of the company’s existence and intellectual property remained in the British subsidiary, for which I requested removal from the register,” says Nešetřil.
At the time, he really felt that he was going to lose everything. “I didn’t sleep for about twenty-four hours and panicked. Then an envelope came back from the London Commercial Register and I was really a little bit sad,” Nešetřil continues. But luck was on his side.
He was supposed to send the application for the company’s dissolution in one envelope together with a ten-pound note, but Nešetřil sent the application and the cash separately. The authorities didn’t know whether the two envelopes belonged together, they didn’t delete it and sent his application and the cash back to him with a notice that if he wished to continue, he could correct his mistake. Thanks to this administrative action alone, Nešetřil didn’t lose a billion.
Now he emphasizes that a similar problem might not have arisen if the EU had already had rules in place at the time that would have unified the fragmented market of twenty-seven countries more. This is currently being addressed at the European level within the framework of the so-called 28th regime, or EU Inc. What is it about?
A single set of rules for the operation of companies. The European Commission presented it in March with the aim of reducing the fragmentation of the business environment. Currently, there are twenty-seven national legal systems and more than sixty different legal forms of companies across the EU.
The proposal covers nine main areas, including the speed of starting a company, the possibility of closing a business faster and easier, improving the conditions for attracting investments, and means of improving talent recruitment, including the creation of employee share schemes (ESOPs).
The EU Inc. initiative itself, which has been calling for similar changes for years, published an update at the end of May on how the legislative process is developing.
“We have reviewed the Commission’s proposal in detail, in cooperation with international law firms and legal experts. This is not the 28th regime that we advocated for. It is not one fully harmonised single standard for startups. It is not a centralised EU company law or a judicial system.”
“It functions more as a complement to each country’s existing legal system. This is a different approach from our original proposal.”
“But if implemented properly, it can achieve the same goal: to create a pan-European standard.”
EU Inc. also points out that there are lobby groups that are pushing for the proposed changes not to be approved in a regime that would actually help startups – which would lead to each country implementing the 28th regime independently and creating 27 different 28th regimes.
“The startup ecosystem needs to have a real say before July 16,” urges EU Inc.
That’s when the proposal is due to go from the European Commission to the European Parliament.
"If we had EU Inc. back then and a sufficiently large number of founders and founders were using it in Europe, American investors probably wouldn't have pressured me to change jurisdiction and do a Delaware flip," adds Nešetřil, who currently serves as vice-rector of CTU.