Cayman sandwich: what is it and why does it taste so good?

To structure a company with investors, a Cayman sandwich is the obvious, and cheapest, choice for LatAm startups. Not only will you avoid our lovely bureaucratic system, but you'll get investors on board hands down, preventing future frustrations for all.

If you’re serious about raising money through venture capital, you need to understand how a Cayman sandwich works and why you need it as your company structure. 

You can thank us later!

What is a Cayman sandwich?

A Cayman sandwich is the nickname given to the corporate structure commonly used by Latin American startups to attract fearless investments, streamline procedures, and achieve tax efficiency.

The name of this business structure is simply due to the three layers of the Cayman sandwich, which are:

1. A Cayman holding company, with investors and individuals holding shares at the top.
2. A Delaware LLC intermediary, optimizing for exits and adding disclosure advantages. 
3. A LatAm operating company, isolating all of the legal liabilities. 

The Cayman sandwich structure also simplifies regional expansion, making it as easy as opening a subsidiary in the new country under the US and Cayman entities.

In terms of equity, we end up with a pretty simple breakdown:

• Investors, founders, employees and advisors own shares of the Cayman Holding company;
• the Holding company owns 100% of the Delaware LLC;
• the Delaware LLC owns 100% of the shares of the local operating companies.

Investments trickle down from the top, and if you're planning on exiting through an acquisition, you can either sell at the Cayman level or sell at the Delaware level, both without any surprise US corporate taxes.

Is a Cayman Sandwich the best corporate structure for LatAm startups? Um, yes? need to ask? In fact, as of 2022 a whopping 47.7% of all LatAm unicorns have a Cayman Islands Holding as part of their company structure. Don't believe us? Check SEC records and Carey Olsen news yourself.

As of the last ten or so years, the Cayman sandwich has become something of an industry standard for LatAm companies due to a variety of reasons, but it wasn't always this way.

How did the Cayman sandwich structure start?

Once upon a time, most VCs turned down directly investing in LatAm operating companies because of all the legal liabilities, and so raising capital from international investors required a legal entity in the US.

Incorporating in Delaware seemed like a no-brainer considering its advanced business law system. LLCs weren't an option because they didn't support preferred shares, so having a Delaware C-Corp became a requirement for accelerators like Y Combinator.

LatAm founders soon learned that the tax implications didn't look too good for them: US C-Corps were subject to double-taxation. 

So add that to the taxes they were still paying in their country of residence, millions of dollars were left at the table in successful exits like Viva Real's famed  $600 million acquisition with a $100 million tax bill.

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‍If there is one thing you should know about investors, it's that they hate waving money goodbye. It's no surprise they were the ones to first look into alternatives to have tax-optimized company structures.

And so, the Cayman sandwich structure started with founder-friendly venture capital Kaszek, all the way back in 2011-2012.

At that time, they began recommending that their portfolio founders set up a Cayman company holding on top of their operating entities, with an added Delaware LLC in the middle to insulate all legal liabilities and provide disclosure advantages in M&A transactions. 

When other funds saw what they were up to and how much more profitable exits could be under this new three-tier structure, they were quick to jump on the bandwagon and make it into the phenomenon we know today.

How do I receive investments with the Cayman sandwich?

With some adaptations, a standard SAFE (Simple Agreement for Future Equity) should be enough to get the ball rolling – your lawyers will have it easy.

From a legal standpoint, all three of your legal entities will need their own bank accounts before you can get investor checks in.

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The procedure for getting the money in a Cayman sandwich is pretty much like this:

1. Investments will come in at the Cayman Islands level, meaning you'll issue shares of your Cayman holding to investors when it's time for it.
2. The money will be wired to your Cayman Islands corporate account. 
3. From there, you'll need to first wire it to your US bank account.
4. And, then, to the local bank account, to keep your financial records compliant with all three jurisdictions.

For legal reasons, it's important that all of your operational expenses are made from your local operating company: think of day-to-day needs like payroll, equipment purchases, software subscriptions, etc. We don't want the authorities thinking you're evading taxes.

Examples of LatAm companies using the Cayman sandwich

If you are new to the biz and were wondering what’s the best corporate structure for attracting investors to LatAm, I think we’ve made the answer pretty clear so far, right?

For all research enthusiasts, here are a few examples of companies using the Cayman sandwich corporate structure. 

Cornershop

The grocery store app was founded in 2015 and set up their Cayman sandwich from the very early days, making Uber's acquisition of the company in July 2020 a much simpler ordeal: Cornershop simply sold 100% of the shares of their Delaware LLC.

Nubank

Challenger bank phenomenon Nubank is publicly traded in the New York Stock Exchange (NYSE) with their Cayman Islands entity, but their original private setup had a Delaware LLC and a Brazilian operating company.

Tiendanube

Tiendanube, known as Nuvemshop in Brazil, has their legal entities set up under a different business name, and its structure is the one we know and love – if you want to look them up, try "Linked Store" as a starting point.

Creditas

Founded in 2012, Creditas didn't initially have the Cayman sandwich as their corporate structure; they adopted it through an equity flip during their later-stage rounds, which is no surprise seeing as they became part of Kaszek's portfolio.

QuintoAndar

Real estate tech QuintoAndar first incorporated their local entity in Brazil back in 2012, but later went on to set up their Delaware LLC and Cayman Islands Holding company as they raised follow-on funding rounds.

It's a wrap (pun intended)

The Cayman sandwich is an international corporate structure optimized for Latin American startups that plan on raising capital from global institutional VCs, and it's all the rage with most unicorn companies on our side of the continent.

You now know what it is and what purpose it serves, yet one question remains unanswered: why name a sandwich after the top bun?

Not all mysteries are meant to be solved, but if you need your own Cayman sandwich structure and have operations based in Brazil, we have just the answer for you.

Keep learning

‍Tax neutrality in the Cayman Islands

C-Corps vs. LLCs: what's the difference?

The US $100 million company formation mistake

How to change your startup's corporate structure

Podcast episode about corporate structures

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