Three Lessons from Latin America’s Pro-VC Reforms

Corporate law has recently moved closer to the center of venture capital (VC) policy debates. In the United States, that debate resurfaced with Delaware’s 2024 introduction of § 122(18), which expanded the permissible scope of shareholder agreements. In Europe, it now appears in discussions of the 28th regime, a proposal to create a new pan-EU corporate form. Yet much less attention has been paid to VC-oriented corporate law reforms in other regions. At ECGI’s Sixth LawFin Workshop, I presented findings from a new empirical study tracking the evolution of corporate law across twelve jurisdictions over two decades. This post summarizes three lessons from Latin America.

Targeted Reforms Can Unlock Unicorn Formation

Skeptics of corporate law’s relevance to VC maintain that, despite differences, most legal systems already provide sufficient flexibility for founder-investor deals. Because savvy parties can always contract around rigid rules—the argument goes—corporate law is largely irrelevant. My research challenges this view.

Using a new index that tracks legal rules governing boards, shares, and shareholder agreements in private corporations—the Startup Corporate Law (SCL) Index—I show that, by default, most legal systems restrict the kinds of agreements that founders and investors need most. For example, in most jurisdictions studied, investors could not obtain the right to appoint their own director through a charter provision, which is standard in Silicon Valley and has allowed minority investors to monitor and exercise control over startups’ most critical decisions. These barriers are not always visible, but they shape what kinds of founder-investor deals are possible. 

Unexpectedly, three Latin American countries went further than the global trend of gradual, selective reform. Chile, Colombia, and Mexico each enacted “big bang” reforms between 2005 and 2010, introducing entirely new corporate forms with highly flexible governance and capital structures that could accommodate the interests of multiple investors at different stages. Their SCL scores rose dramatically, and roughly nine years later, their first Unicorn startups emerged. Adjusted for GDP per capita, these three countries now outperform most of their peers—and even several European economies—in producing billion-dollar startups. Critically, there is no significant evidence of Unicorn founders emigrating to jurisdictions with more enabling corporate law, a phenomenon I term Founder Drain and identify in many European jurisdictions. These findings suggest that the reforms succeeded not only in easing access to capital but in retaining high-achieving founders at home.

What explains these outcomes? A critical driver was signaling. Colombia, for example, introduced its new “simplified corporation” in a standalone statute, facilitating access and accelerating adoption. Entrepreneurs, who had historically registered as limited liability companies ill-suited for VC, began switching almost immediately, until the simplified corporation became the dominant legal form in the country—a shift I document econometrically in an earlier study. Peru, which started the period with a competitive SCL Index score but never sent a comparable signal, has yet to produce a single Unicorn. The contrast is itself a strong signal.

Reforms Alone Cannot Substitute for Institutional Trust

The second lesson is more sobering. Despite radical reforms, virtually every Unicorn in Chile and Colombia operates through what I term Offshore Governance. In this structure, a foreign holding company—typically in Delaware or the Cayman Islands—is established to ensure that investor agreements are governed by laws perceived as less risky than domestic ones.

Consider Rappi, Latin America’s first Unicorn. In most public databases, Rappi appears as a Colombian company—and, operationally, it is. However, its Regulation D disclosures with the U.S. Securities and Exchange Commission reveal that it created a Delaware parent corporation that received the VC financing and through which all key governance decisions (e.g., financing, board composition, and executive appointments) are made. Rappi is a notable example but not an outlier: my study shows that most Mexican Unicorns and all Unicorns in Chile and Colombia have an Offshore Governance structure.

Now, while Offshore Governance certainly contributed to the growth of VC flows in Latin America, it comes at a cost: by structuring finance and governance abroad, domestic legal systems are deprived of the positive spillovers that a thriving VC market would otherwise generate, including the sophistication of courts, regulatory agencies, and professional service providers. Concerningly, it runs in a self-reinforcing cycle: the weaker the domestic legal infrastructure, the more investors distrust it, and the more they demand Offshore Governance structures. Although breaking this cycle requires more than corporate law reforms, understanding the trade-offs among different policies deserves further attention. (I explore this further in a co-authored piece here.)

Expanded Flexibility Comes with Governance Risks

A final insight I shared from my study concerns the broader impact of these changes on corporate governance. Most companies are not Unicorns and are not designed to raise capital from VCs. Yet, they, too, are governed by an increasingly flexible legal system prone to new governance challenges that have gone largely unnoticed.

Shareholder agreements, for instance, have become a powerful instrument in Chile and Colombia. In both jurisdictions, the corporation can be a party to these agreements, giving them quasi-charter status. However, unlike charters, these agreements need not be publicly disclosed. Thus, actual governance arrangements can be effectively concealed from third parties, employees, and future investors. These are issues Delaware itself has grappled with, most recently in the debates surrounding Moelis and DGCL’s new § 122(18). The difference is that, in Latin America, they are emerging without a developed body of case law or the decades of private ordering experience that have allowed U.S. markets to self-correct. Moreover, business groups, which prevail in Latin America, can now use these expanded freedoms to structure control and cash flow arrangements that are invisible to external capital providers, making it harder to assess who actually controls the firm and whether decisions advance firm value or group interests, ultimately deterring investment or increasing its cost.

These three lessons offer a more nuanced picture of corporate law’s role in fostering VC than is often assumed. For European policymakers debating the 28th regime, Latin America's experience suggests that new corporate forms can be transformative—but that the governance risks attached to higher flexibility must be carefully calibrated.

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Álvaro Pereira is an assistant professor of law at Georgia State University College of Law.

This blog is based on a paper presented at the Sixth LawFin Workshop U.S. Venture Capital Contracting Goes Global: Perspectives from Asia and Latin America on 18th March 2026. Visit the event page to explore more conference-related blogs.

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