ACE.SG is pleased to invite you to Personal Branding 101 for Women in Tech: RISE and Shine, an exclusive event dedicated to empowering women in tech, organised in collaboration with TechTalent Assembly (TTAB).
Join us if you are interested in: - R: Relationship building and Rebranding through LinkedIn
- I: Building a confident Image
- S: Knowing your Skills in tech
- E: Fostering Emotional wellness to shine from within
Event details: - Date: 27th June (Thursday)
- Time: 6:30pm - 9:00pm
- Venue: ACE Ideation Centre,79 Ayer Rajah Crescent, #01-13 JTC LaunchPad@one-north, Singapore 139955
Women Empower Women (WEW) is an initiative of TechTalent Assembly’s 2024 four-season series aimed at encouraging and empowering women to thrive in tech careers.
In this second series, Personal Branding 101 for Women in Tech: RISE and Shine, we are thrilled to present two distinguished speakers:
- Ratna Juita (Founder of The Mindgem, LinkedIn Top Voice)
Topic: "Shine your Career with LinkedIn and Well-Being!" Discover how to unlock your potential in tech by mastering LinkedIn networking and prioritizing mental wellness. Learn how building meaningful relationships and shining from within can elevate your career and well-being.
- Yulia Saksen (International Brand Consultant)
Topic: "Elevate Your Tech Career with Personal Branding" Explore the transformative power of personal branding in tech. Understand how personal branding is not just about being known but about leaving a lasting impression.
This event is exclusively for TTAB women members, ACE.SG women members, and special invitees. |
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If you have yet to sign up for ACE.SG membership, click the button below!
Membership is complimentary! |
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Applications for our July ACE.SG Incubator cohort is closing soon!
Aspiring entrepreneurs and early-stage startups, this is your opportunity to leverage the ACE.SG Incubator Programme to kickstart or propel your business forward.
ACE.SG has incubated over 300 startups with 110+ active investors, 150+ global mentors and facilitated over 50 $50,000 SG Founders Grants.
In 3 months, this equity-free program will provide you with the necessary support to build a robust business model, sharpen your go-to-market strategies and eventually scale your business globally.
Here's what you can expect to gain: - Exclusive funding opportunities from our VC partners
- In-depth expert workshops
- Personalised 1-on-1 mentorship
- Access to ACE.SG’s extensive network
- Complimentary access to ACE.SG’s co-working spaces
- Eligibility for the Startup SG Grant (up to $50,000)
Slots are limited, so don't miss out on this chance to accelerate your entrepreneurial journey! |
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🌍Join the Falling Walls Lab and Unleash Your Breakthrough Ideas! 🚀 Application Deadline: 31 July 2024, 11:59pm Pitch Event Date: 4 September 2024, 2:00pm - 4:00pm Calling all Innovators, Trailblazers, and Visionaries! The Falling Walls Lab, organised by ACE.SG's partner, SGInnovate, is your chance to showcase your groundbreaking idea on a local and global stage. The winner of Falling Walls Lab Singapore on 4 September will receive a return flight and accommodation to represent Singapore at the global finale of Falling Walls Lab in Berlin on 7 November, among finalists from 50 other countries. Don't miss out on this opportunity to hone your pitching skills through one-on-one pitch coaching with a seasoned science communicator and network with fellow innovators and investors from all over the world for potential collaborations and partnerships. |
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| Fundraising 101: Understanding Liquidation Preference |
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If you are looking to raise a round of equity financing, or have raised a round before, then you are very likely to have come across the term “liquidation preference”. A quick online search might have brought you to articles written by Investopedia or Corporate Finance Institute which provide a general description of the term. However, these write-ups tend not to be jurisdiction-specific, or tailored for your objective as a founder looking to raise monies to be injected into a Singapore private limited company.
Today, as a member of the Venture Capital Investment Model Agreement 2.0 (VIMA 2.0) working group which is a joint initiative between the Singapore Academy of Law and the Singapore Venture and Private Capital Association, I pen down an introduction of this term to explain liquidation preference to founders looking to raise institutional capital. In each section, we also include some pro tips from seasoned veterans in the venture capital ecosystem. This time, we have the fortune of obtaining some invaluable nuggets of wisdom from Dr Jeremy Loh, Managing Partner of Genesis Alternative Ventures, one of Southeast Asia’s premier private lenders to venture and growth-stage companies backed by tier-one venture capitalists. |
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| What is liquidation preference? |
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Liquidation preference is a term that determines how the proceeds of a liquidity event are distributed. It is designed to ensure that investors who participate at a later stage (and typically at a higher valuation) with preference shares are paid out before any proceeds are distributed to founders and employees who hold ordinary shares. |
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Illustration of cash waterfall from a Liquidity Event In VIMA 2.0 agreements, the liquidation preference term is contained in the shareholders’ agreement and the model constitution. - It is found in the shareholders’ agreement to the extent that this is a transaction document that would bind all shareholders of the company and is therefore included to ensure all shareholders agree to how proceeds are distributed upon a Liquidity Event.
- It is also included in the model constitution as that is where key preference share terms must be included in order to provide the legal basis for the creation of a class of preference shares. Liquidation preference, being the key aspect of a preference share, would therefore feature prominently in the constitution of a company.
Additionally, the liquidation preference term might be included in passing in (1) the subscription agreement to reference the class of preference shares being subscribed for by an investor and (2) the term sheet where a prospective investor agrees on the class of preference shares it is agreeing to invest in. The liquidation preference term is critical to founders because it directly impacts a founder’s payout during an exit. Put simply, a founder who manages his/her start-up’s liquidation preference well after each fund-raising round can enjoy the spoils of a favourable exit. Likewise, if the liquidation preference term is not managed well, even the most lucrative of exits might see little left to be paid out to founders when the spoils are enjoyed unequally by the holders of preference shares. |
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| Composition of a Liquidation Preference |
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There are a few parts to understanding a liquidation preference term and in the VIMA 2.0 agreements, these are generally understood in three broad categories:
- Seniority: First, there is the seniority of the class of preference shares. As a rule of thumb, the cash waterfall tends to favour the investors in later rounds over those in earlier rounds. Therefore, a Series A preference share is more often than not senior to a Series Seed preference share and a Series Seed preference share senior to a Series Pre-Seed preference share.
- Multiple: Second, there is the multiple of the liquidation preference (1.0x, 1.5x, 2.0x etc.). In the VIMA 2.0 agreements, this is expressed as a percentage of the “initial subscription price per share”. A 1.0x liquidation preference would correspond to a 100% multiple of the initial subscription price per share paid by the investor. Accordingly, an investor who agrees to a 1.0X multiple can expect to receive at least his/her initial subscription price back during a liquidity event. Likewise, a 2.0X multiple would mean that an investor can take back 200% of the initial subscription price per share, doubling the investment.
- Participating / Non-Participating: Finally, there is the option to provide for participating or non-participating preference shares. The participating feature allows the holder of a preference share to further participate in the distribution of the remaining proceeds alongside the holders of ordinary shareholders, thereby granting them a much larger portion of the proceeds upon an exit. Non-participating preference shares on the other hand are more focused on downside protection as holders of such shares do not participate in the distribution of assets with the ordinary shareholders after they have enjoyed their preferential payout.
Later stage rounds can see variations of the above play out, and there might be caps introduced on the amount that can be received as a result of the liquidation preference term. These are unlikely to be included in early-stage fund-raises in Singapore, or for that fact in the Southeast Asian context, granted that 1.0X non-participating preference shares are (more often than not) the norm here. |
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| Worked example of a liquidation preference term in practice |
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One way of understanding how a liquidation preference term would work in practice would be through the use of a worked example. In the tables below, we assume that an investor had made a 3-million-dollar investment into a company for 30% of its shares. We then illustrate the payout that the investor would obtain if it had invested and obtained each of the following types of shares. - Example A: Investor took ordinary shares
- Example B: Investor took 1.0X non-participating preference shares
- Example C: Investor took 1.0X participating preference shares
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From the above example, we can observe the following characteristics of preference shares.
- Downside protection: When comparing the exit outcomes in Example A against those of Examples B and C, the downside protection offered to an investor by obtaining preference shares with a liquidation preference becomes apparent. In a distressed exit where the company is sold for $1m only, an investor who had obtained ordinary shares would only be entitled to 30% of the $1m exit proceeds, thereby making a loss. On the other hand, an investor who had opted for preference shares is more insulated as such an investor would have gotten all of the $1m exit proceeds as a result of the liquidation preference if it had opted for.
- Potential to make additional profits: Beyond downside protection, an investor who had opted for preference shares with a participating feature can enjoy additional earnings. This can be noted when comparing the earnings obtained from the $5m dollar exit and the $103m dollar exit in Example C against the amounts received by the parties in Example A.
In the $5m dollar exit, an investor with participating preference shares is not only able to recoup its investment in full but will make a slight profit when the investor also participates in the additional distributions alongside the ordinary shareholders.
In the $103m dollar exit, the investor with participating preference shares not only takes its initial $3m dollar investment back but also obtains an additional $30m dollars by participating in the additional distributions alongside the ordinary shareholders. |
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| What is the market’s position on liquidation preference – 1.0x non-participating preference shares |
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As mentioned above, early-stage rounds in Singapore and Southeast Asia that are based on the VIMA 2.0 agreements tend to lean towards a start-up-friendly 1.0x non-participating liquidation preference. This is particularly so in Asia where cultural nuances emphasise more on building long-term relationships with founders which might persist into later rounds. Even when the zero-interest environment went away, many start-ups which had great potential and demonstrated strong bargaining power managed to pull off early-stage fundraising rounds with a 1.0x non-participating liquidation preference. As alluded to in the worked example above, a 1.0x non-participating preference strikes a fine balance between shielding investors with the benefits of downside protection and ensuring that founders are motivated by the upside potential should they grow a thriving and profitable business. Having said that, it is only fair to also note that businesses with less leverage may experience higher multiples ranging from anything between 1.1 to 1.5x multiples on a non-participating basis in their earlier rounds. |
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| How can founders prepare themselves to obtain the best liquidation preference out there |
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Managing liquidation preference begins with understanding and negotiation, and there are many ways that a founder might be able to clinch a round with a better liquidation preference.
- Read up and arm yourself with knowledge: Knowledge is power. Founders looking to raise any institutional money should gain a thorough understanding of how liquidation preference works, including all its nuances, and any information it can gain about a prospective investor. The VIMA 2.0 working group regularly publishes articles about venture capital investments and these serve as a great starting point for any research.
- Know your cash runway: The best time to raise money is when the need for funds is not critically urgent. Always leave a healthy runway and enter into negotiations with a good buffer, especially when due diligence and term sheet negotiations can become protracted. Always remember that a business that needs money urgently has a lot less leverage because it cannot choose to simply walk away.
- Seek professional advice: Founders should work with professional advisors who have run dozens of deals across geographies especially when they intend to run a regional business. Whilst an experienced legal counsel might be a little more expensive, the insight into current market trends and other contractual intricacies might land founders in better stead in time to come.
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Liquidation preference is more than just a term in a contract; it is a crucial factor that can significantly impact a founder’s financial outcome in an exit. By understanding its importance, and learning how to manage it during each fundraising round, founders can better navigate its complexities. Always try to sink a 1.0x non-participating liquidation preference and use that as a starting point for negotiations, start early, get as much information about your prospective investor as possible, seek professional advice and, where appropriate and with professional guidance, fall back on the VIMA 2.0 model form agreements. |
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