Raising capital: the legal playbook for a Bulgarian startup

Most founders read their first term sheet only when it is already in their hands. By then they have usually done three things that later cost equity or weeks of delay: registered an OOD, paid an external developer with no IP assignment, and promised shares to an adviser in a single email.

This piece walks the whole path of a round - instrument, term sheet, vesting, the investor's diligence, the regulatory layer, and what you owe after signing. The numbers are market reference points rather than rules; the statutory references are to the versions in force as of August 2026. The company's legal form - OOD, DPK, or AD - decides which of the options below is even available to you; the choice between them is covered separately in our piece on corporate structure.

1. The instrument: how the money actually arrives

Feature	Equity round	SAFE	Convertible note	Revenue-based
Dilution	Immediate at closing	At a future round	At a future round	None
Interest and maturity	None	Neither	Both	Repayment multiple
With an OOD	Full (Art. 129)	Problematic (Art. 9 OCA)	Partial (Art. 240 OCA)	Full
With a DPK	Full	Full (Art. 260i(7))	Full (Art. 260i(7))	Full

Equity round. A primary subscription of new shares or a purchase of existing ones. The document pack is the SPA, the SHA, new articles, general meeting and board resolutions, an updated partners' register and bank confirmation. Funds move through a subscription account released after registration.

SAFE. In an OOD a SAFE has no legal figure of its own - it is treated as an unnamed contract under Art. 9 of the Obligations and Contracts Act, which leaves conversion dependent on a future corporate decision. In a DPK it has direct footing in Art. 260i(7). The most common mistake is signing an American template unadapted: a document written for a Delaware C-Corp does not describe mechanics a Bulgarian court or registry will recognise.

Convertible note. A loan under Art. 240 of the Obligations and Contracts Act with a conversion right. The usual parameters - 4% to 8% interest, 12 to 24 month maturity, a valuation cap and a discount - are negotiating reference points, not a standard. In insolvency the loan ranks as unsecured debt unless you agreed otherwise.

Revenue-based financing. Capital against a share of revenue until a multiple is reached. On USD 100,000 with a 1.4x cap and 5% of gross revenue, a month at USD 20,000 of revenue costs USD 1,000 and a month at USD 100,000 costs USD 5,000. It does not dilute, but it eats cash flow exactly when you are growing. Before calling it "a commercial loan", check whether the specific structure falls into a regime under the Credit Institutions Act.

2. The term sheet: what binds and what does not

The economics - valuation, amount, liquidation preference, board - are normally non-binding. Exclusivity, confidentiality, expenses and governing law are binding.

Exclusivity is the clause most often signed unread. Negotiate 30 to 45 days, a long-stop date for signing the definitive documents, automatic termination if the investor materially changes the terms, and express carve-outs for inbound proposals and existing discussions. A breach triggers the agreed penalty or damages under Art. 12 of the Obligations and Contracts Act.

Valuation and the option pool shuffle

Post-money equals pre-money plus the investment. The detail that matters is not the number but when the option pool is created.

At a USD 4,000,000 pre-money valuation, a USD 1,000,000 investment and a 10% pool:

• Pool created pre-money: founders 70%, investor 20%, pool 10%. All the option dilution is on you.
• Pool created post-money: founders 72%, investor 18%, pool 10%. The dilution is shared.

Two percentage points turning on one word in the term sheet. Which is why pool size should be justified by a real 12-18 month hiring plan rather than accepted by default.

The liquidation preference, in numbers

A sale at USD 10,000,000, with an investor holding 20% for USD 2,000,000:

Clause	Investor	Founders
1x non-participating	USD 2,000,000	USD 8,000,000
1x full participating	USD 3,600,000	USD 6,400,000
2x non-participating	USD 4,000,000	USD 6,000,000

With non-participating, the investor takes the greater of their money back or their percentage. With participating, they take their money back first and then share in the remainder as well. 1x non-participating is the usual regional reference point, not a rule you can invoke - and at a lower exit the gap is far more dramatic than the table suggests.

The preference is triggered by an asset sale, a merger, a share sale and a liquidation, but not by secondary transactions between partners.

The other clauses that move money

• Anti-dilution. Accept broad-based weighted average. Reject full ratchet, which drops the investor's price to the lowest price of a later round regardless of volume. Check that ESOP shares, SAFE conversions and splits are carved out as permitted issuances.
• Drag-along. Ask for an approval threshold above 65-75% of capital, express consent from a majority of the founders, a minimum deal price, and a cap on your personal warranties.
• Protective provisions. Keep them to fundamental corporate actions. A veto over operating spend is overreach. Push for a sunset - vetoes falling away when the investor's stake drops below 5-10% or on exit.
• Warranties. Your personal exposure is limited through the disclosure letter, a liability cap (say, annual compensation rather than the size of the round), de minimis and basket thresholds, and a survival period - typically 18-24 months for general warranties and 3-5 years for tax and IP.
• Redemption rights. Rare, and hard to enforce against a Bulgarian OOD because of capital maintenance rules. If one appears, it is a negotiation topic, not a detail.

3. Vesting: turning promises into documents

The standard is 4 years with a 1 year cliff. Leave before month 12 and you keep 0%. At month 12, 25% vests at once, then 1/48 monthly. Leaving at month 18 means 37.5%; at month 36, 75%.

The good leaver / bad leaver distinction is what makes vesting work in practice: illness, disability or dismissal without cause preserve what has vested; misconduct or competing activity forfeit the unvested and force a sale of the vested at nominal value.

Bulgarian law has no "reverse vesting" figure for an OOD. Three constructs do the job: a call option under Art. 9 of the Obligations and Contracts Act, a special pledge over the shares, or conditional shares in a DPK under Art. 260v. A buy-back by the company itself is not a universal fix, given the capital constraints in the Commerce Act.

For advisers there is no fixed standard - usually 0.1% to 1.0% depending on the role and real contribution, with 2 year vesting and a 6 month cliff. Phantom options in an OOD are taxed as employment income with social contributions when paid out, while real shares in a DPK sit in the capital gains regime. The difference in what your team actually nets is material.

4. Diligence: what opens or kills the deal

Legal due diligence rarely derails a round over something exotic. It derails it over IP.

• Intellectual property. Employee-written code is a work made in the course of employment under Art. 14 of the Copyright Act, but every external contributor - freelancer, agency, designer - needs a signed assignment. Add open-source licence review for copyleft exposure, trademarks, domains and repositories. If the chain of title breaks, that is the first entry in the red-flag report. More in our piece on protecting your ideas.
• Corporate file. Current articles, general meeting and board minutes, the partners' register, UBO declarations, older investment agreements.
• People. Employment contracts, promised bonuses and options, confidentiality and non-compete clauses, disputes with former employees.
• Contracts. Key customers and suppliers, cloud agreements, and above all change-of-control clauses that may require consent right before closing.
• Finance and tax. Management accounts, burn rate, VAT and social security, a no-liabilities certificate under Art. 87 of the Tax Procedure Code.
• Regulatory. GDPR policies and DPAs, and depending on your sector the AI Act, NIS2, DORA or specific licences.

Dead equity is its own topic. A co-founder who left holding 15% and contributing nothing is a red flag that blocks deals. Clean it up before investor meetings, not during diligence.

5. The regulatory layer most founders skip

Prospectus and public offering. Stakes in an OOD or a DPK are not securities, while shares in an AD are - that determines whether you are within scope of the Public Offering of Securities Act and Regulation (EU) 2017/1129 at all. The exemptions include offers made only to qualified investors, offers to fewer than 150 persons per member state, and a national threshold of EUR 8,000,000 over 12 months. Being exempt from the prospectus does not exempt you from every information requirement. Separately, aggressively marketing the round through your website and social channels risks being classified as a public offering.

AML and beneficial ownership. Under Arts. 61 and 63 of the AML Act the company must file the natural persons holding over 25% or exercising ultimate control through a chain of entities. Outdated UBO data is penalised under Art. 116 with fines of BGN 2,000 to 20,000. Investors sign source-of-funds declarations under Art. 66 and PEP declarations, with the exact forms set by the internal rules of the obliged entity involved - bank, notary or lawyer.

Reporting to the central bank. BNB Ordinance No. 27 requires reporting of cross-border transactions, with a holding of 10% or more treated as foreign direct investment. The form, threshold and deadline depend on the specific transaction - do not assume one form fits every case. The liability sits with the managing director even when the task is delegated to an accountant.

FDI screening. Since 22 July 2025 the regime under the Investment Promotion Act is operational in practice. An investment by a non-EU party into a sensitive sector - critical infrastructure and energy, defence and cybersecurity, sensitive technologies and AI, healthcare, personal data processing, media - may require prior clearance from the interdepartmental screening council. Check the investor's origin and ultimate owner, the size of the stake, and whether foreign state funding is involved. Where screening applies, clearance goes into the SPA and SHA as a condition precedent. And note the second half of that: a missed screening is not something you fix after registration.

6. The flip: when it makes sense and what it costs

A flip turns the Bulgarian operating company into a wholly owned subsidiary of a foreign holding company. Before doing it, look at the alternatives: direct investment into the Bulgarian entity, a Bulgarian holding structure, or converting into an AD.

The tax side is what surprises people. Under Art. 38(5) read with Art. 33(3) of the Personal Income Tax Act, swapping your Bulgarian shares for shares in the foreign company is taxable, with taxable income measured as the difference between the market value of the shares received and the documented acquisition cost of the Bulgarian ones. The result is a classic dry tax event: 10% payable at the moment of the transfer, with not a single lev reaching the founder.

Also check tax residence and the applicable double tax treaty, the controlled foreign company rules (Arts. 156a - 156zh of the Corporate Income Tax Act) and transfer pricing (Art. 15 ff. of the Tax Procedure Code). Separately, decide what happens to the IP - stays in the operating company under licence, or moves up entirely - and make sure existing SAFEs, convertible notes and option promises are carried over to holding level.

Costs run roughly USD 10,000 to 35,000 to structure and USD 5,000 to 15,000 a year to maintain. The "rounds above USD 500,000" threshold is a negotiating reference point, not a rule.

7. Foreign law over a Bulgarian company

Funds often want the SHA under English or Delaware law, with arbitration at the LCIA, the ICC or VIAC. That is permissible, but there is a hard limit: corporate matters concerning the Bulgarian company - filings, capital changes, convening the general meeting, majorities - remain governed by the mandatory rules of the Commerce Act, whatever the SHA says. That is why an SHA normally obliges the partners to vote the articles into line with what was agreed.

The practical differences between institutions are cost, speed and language: the LCIA and ICC are expensive, with proceedings usually running 12-18 months; VIAC is cheaper and faster; arbitration at the Bulgarian Chamber of Commerce is the cheapest, runs in Bulgarian, and enforces directly at home. Foreign awards are enforced under the New York Convention, which works but adds a step.

8. Timeline and what you owe after signing

Realistic durations:

Scenario	Duration
Angel round or SAFE	2 - 4 weeks
Institutional seed	2 - 3 months
Series A with a flip or FDI screening	4 - 6 months

Post-closing is where quiet breaches accumulate:

• registering the changes in the commercial register within the applicable deadline;
• updating the beneficial ownership declaration under Art. 63 of the AML Act;
• filing with the central bank on the applicable form and deadline under Ordinance No. 27;
• delivering the SHA information rights - quarterly reports, annual budget - from the first quarter, not when the investor asks;
• if you hold an EU or Fund of Funds grant, check its ownership-change and IP transfer conditions before the deal breaches them and triggers a clawback.

And one topic nobody raises in the euphoria after a round: under Art. 626 of the Commerce Act the managing director must file for insolvency within 30 days of ceasing payments. That personal exposure is real, and it does not disappear because there is an institutional investor on the cap table.

The three things worth the most attention

If you only have time for three conversations with a lawyer before the round, make them these: the instrument (whether a SAFE, a convertible note or a straight equity round even fits your legal form), the chain of title over your code (because that is the finding that stops deals), and the term sheet, line by line - because valuation is the number everyone discusses, while the liquidation preference, the option pool and the protective provisions are where the money is actually redistributed.

This is general information, not individual legal or tax advice. For a specific transaction, talk to an adviser.