The Danish Paradox: Legal Sophistication Meets Capital Flight

This blog post examines the Danish venture capital legal and institutional framework as part of a broader comparative research project conducted with Raphael Andrade and Anne-Sophie Pasquino. Our investigation spans three markedly different jurisdictions—New Zealand, Denmark, and Brazil—to identify the legal and institutional characteristics that either catalyse or constrain the development of venture capital ecosystems.

The Nordic region has established itself as one of Europe's most vibrant venture capital hubs, propelled by a robust research infrastructure and strategic focus on sustainable innovation across fintech, biotech, and cleantech sectors. Denmark exemplifies this success, having produced several notable unicorns: Pleo (valued at $4.7 billion), Lunar ($2 billion), and Trustpilot ($1.5 billion), amongst others.

Yet beneath this apparent triumph lies a perplexing contradiction. Whilst Denmark has generated twelve unicorn companies since 2000, nearly 70 per cent (eight of twelve) have subsequently relocated their headquarters abroad, predominantly to the United States. This systematic exodus of mature, successful firms demands explanation: if Denmark possesses the capacity to nurture global market leaders, why does it fail to retain them?

In our research, we reflect on whether the reasons lie in legal deficiencies of the Danish system. This analysis focuses specifically on the interplay between Danish statutory corporate law and prevailing contractual practices, demonstrating how Denmark meets, and frequently surpasses, the legal prerequisites for a flourishing venture capital ecosystem.

Corporate Architecture: Flexibility by Design

A thriving venture capital ecosystem requires corporate law structures sufficiently flexible to accommodate the contractual alignment of founder and investor interests. Denmark's system delivers precisely this capability.

Danish venture-backed companies predominantly operate through the Anpartsselskaber (ApS), or private limited company structure, governed by the Danish Companies Act (Selskabsloven). The ApS has emerged as the vehicle of choice for start-ups due to its modest capital requirement (reduced to DKK 20,000 as of 2025) and flexible governance architecture, which permits operation with minimal administrative complexity. Firms requiring access to public capital markets or seeking to signal maturity typically convert to the Aktieselskaber (A/S), or public limited company structure, though this entails somehow reduced flexibility.

Danish corporate law demonstrates flexibility regarding venture capital ownership structures. Whilst statute establishes equal shareholder rights as the default rule, the Danish Companies Act explicitly authorises companies to establish multiple share classes with differentiated rights through their articles of association. This structural malleability enables Danish start-ups to replicate the archetypal Delaware "preferred-common" capital structure, creating preference shares with differential or non-voting rights, priority dividend claims, and liquidation preferences—all through clearly articulated constitutional provisions.

From a governance perspective, the law maintains its accommodating posture. An ApS board may consist of a single director, whilst negotiated arrangements governing board composition and special voting rights receive legal sanction. This reflects the pragmatic Scandinavian approach to corporate governance, which balances contractual freedom with protective statutory safeguards.

Assessing Contractual Autonomy

The definitive measure of a venture capital-friendly legal environment lies in its facilitation of private ordering—the capacity of parties to structure their commercial relationships primarily through negotiated contracts.

We evaluated Denmark using the analytical framework developed by Enriques, Nigro, and Tröger, which posits that optimal legal environments exhibit three characteristics: non-interventionism towards private ordering solutions typical in venture capital contexts; restraint from ex post gap-filling that contradicts the economic logic of negotiated deals; and intervention limited to curbing genuinely abusive conduct.

Danish law adheres closely to this ideal. Danish private law is characterised by flexibility, informality, and pragmatism, anchored in the fundamental principle of aftalefrihed (freedom of contract). Moreover, as leading scholars observe, the absence of comprehensive domestic legislative frameworks for venture transactions has rendered Danish practice heavily influenced by Anglo-American traditions, emphasising private ordering and bespoke contractual arrangements.

This influence has precipitated what observers describe as the "Americanisation" or "reception of American law" in Danish contracting practice. Delaware corporate law represents the paradigmatic flexible regime for venture capital contracting, strongly privileging private ordering. Consequently, Danish term sheets routinely incorporate U.S.-style mechanisms that functionally replicate Delaware law through investment and shareholders' agreements, including preference share classes with conversion and liquidation rights, anti-dilution protections, investor board representation, and "good leaver/bad leaver" provisions.

Judicial Reliability: The Enforcement Imperative

Contractual flexibility proves meaningless absent credible enforcement mechanisms. Here, Denmark again outperforms other European jurisdictions. The jurisdiction offers a highly stable and predictable judicial environment, undergirded by robust institutions and deeply embedded rule-of-law traditions. This predictability translates directly into exceptional legal certainty for venture capital stakeholders, who can confidently anticipate impartial contract enforcement and unbiased, expeditious dispute resolution.

The efficiency of Denmark's dispute resolution infrastructure constitutes a substantial competitive advantage. Arbitration enjoys widespread adoption for high-value commercial disputes. As a signatory to the 1958 New York Convention, Denmark ensures broad enforceability of arbitral awards internationally, whilst Danish courts maintain a strongly pro-arbitration posture, safeguarding confidentiality and procedural flexibility. Additionally, transparent public registries facilitate investor due diligence, further enhancing legal certainty.

An Enduring Puzzle

Measured against the criteria identified in the Enriques/Nigro/Tröger framework—from flexible corporate structures and extensive contractual freedom to reliable judicial enforcement—Denmark's legal and institutional architecture closely approximates the theoretical ideal for venture capital markets. The jurisdiction successfully provides the requisite legal infrastructure to enable U.S.-style financing structures and ensure their enforceability.

Given this legal foundation, Denmark has demonstrated the capacity for producing unicorns in the past two decades. Yet, the mass relocation phenomenon persists. If Denmark's legal framework effectively mirrors the structural and contractual freedoms demanded by U.S. venture financing, then the forces driving this exodus must be powerful extra-regulatory factors: tax regimes, access to deep late-stage capital pools, network effects, or the sheer pressure of the U.S. venture capital businesses.

The Danish framework resembles a world-class athletic academy: it impeccably prepares innovators for elite competition, only to watch them sign with global franchises. The law enables success, yet other forces ultimately determine where corporate headquarters reside. This paradox suggests that legal excellence, whilst necessary, proves insufficient for retaining globally competitive firms—a sobering lesson for policymakers who might view legal reform as a panacea for capital flight.

In our forthcoming piece with Raphael Andrade and Anne-Sophie Pasquino, we focus on three diverse jurisdictions—Brazil, New Zealand, and Denmark—to analyse the nuances and presumptions of what constitutes an accommodating legal framework for start-ups and venture capital. We challenge the assumption that the regulatory environment alone determines entrepreneurial success and explore whether legal frameworks are genuinely constraining innovation or merely convenient scapegoats for deeper structural challenges.

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Alexandra Andhov is Professor of Law and Technology at the University of Auckland and Affiliated Associate Professor at the University of Copenhagen.

This blog is based on a paper presented at the Fifth LawFin Workshop, Building Europe’s Venture Capital Market: Contractual Transplants, National Challenges, and the Road to a Pan-EU Regime, held online in December 2025.  Visit the event page to explore more conference-related blogs.

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