As BetterPartners is a service-based firm, it is asset-light, meaning we don't need much asset, especially fixed asset, to be up and running. Therefore, unlike a tech startup which requires millions of dollars to iterate product, hire programmers, promote and market online & offline, and rent working space, we deliberately keep a lean startup style where in most time, we work remotely and utilize resources we already have, such as personal laptops. However, we do need a small amount of initial fund to get things going and we plan to start by our founding partners.
Including me, BetterPartners has 4 founding partners. In an order of seniority, the first founding partner has 40% equity share, the second and third partners each has 22.5%, and I have 15%. We aim to raise 100K RMB initially to get things going. The initial fund will be used to register company, develop business & client relationship, subscribe data service, and recruitment.
In the future, we do plan to attract external investment to facilitate our business growth. Considering the nature of our business, I don't think angel and venture capital investment match our purpose as we will not be a fast-growing business with potential millions of users. In contrary, we consider to attract donation or "patient investment" from foundations who share our vision and mission. According to my past experience, the following foundations in China might be interested in our business and also, can use our partnership to grow their business as well.
YouChange China Social Entrepreneur Foundation
One Foundation
SANY Foundation
Chi Heng Foundation
Gingko Foundation
In my personal or professional experience, I have talked with some of these foundations regarding partnership with a professional service firm. They all seem very interested in financial cooperation. One concern I have is to approach donation or investment. Donation is more flexible for us because donation might have less constraint on the usage of the money, whereas investment might put more pressure on the our growth. Additionally, in the case of investment, we will lose certain amount of control but have more "right" to leverage investor's resources. Considering the trade-off in the case of investment, I would preliminarily focus on Economic Terms and Control Terms.
Economic Terms
1. Price: I plan to cap the postmoney equity share the foundations can have. (I am curious about their methodology of valuation.)
2. Liquidity Preference: I would focus on participating perference and will not allow mutiple preference. "Kick-outs" is actually a good term for us because it motivates us to generate certain level of return for our investors and gives us preferred liquidity position after achieveing the return requirement.
In addition, I would also include other terms such as pay-to-play, vesting, employee pool and antidilution.
Control Terms
1. Board of Directors: first of all, I prefer not to have a board observer as I don't see value of this position, especially in the case of BetterPartners. Second, I plan to form the initial board with Founder, CEO, Foundation, a second Foundation and an outside board member.
2. Protective Provisions: from my perspective, protective provisions are reasonable for both investors and investees. Therefore, we are open to include protective provisions in the term sheet. And according to Feld and Mendelson's Venture Deals, these clauses have become standardized. One point I shall pay special attention is when future financing or investment occur, I should negotiate with future investors to have them vote as a single class.
Additionally, I would also include other key terms such as drag-along agreement and conversion.
Including me, BetterPartners has 4 founding partners. In an order of seniority, the first founding partner has 40% equity share, the second and third partners each has 22.5%, and I have 15%. We aim to raise 100K RMB initially to get things going. The initial fund will be used to register company, develop business & client relationship, subscribe data service, and recruitment.
In the future, we do plan to attract external investment to facilitate our business growth. Considering the nature of our business, I don't think angel and venture capital investment match our purpose as we will not be a fast-growing business with potential millions of users. In contrary, we consider to attract donation or "patient investment" from foundations who share our vision and mission. According to my past experience, the following foundations in China might be interested in our business and also, can use our partnership to grow their business as well.
YouChange China Social Entrepreneur Foundation
One Foundation
SANY Foundation
Chi Heng Foundation
Gingko Foundation
In my personal or professional experience, I have talked with some of these foundations regarding partnership with a professional service firm. They all seem very interested in financial cooperation. One concern I have is to approach donation or investment. Donation is more flexible for us because donation might have less constraint on the usage of the money, whereas investment might put more pressure on the our growth. Additionally, in the case of investment, we will lose certain amount of control but have more "right" to leverage investor's resources. Considering the trade-off in the case of investment, I would preliminarily focus on Economic Terms and Control Terms.
Economic Terms
1. Price: I plan to cap the postmoney equity share the foundations can have. (I am curious about their methodology of valuation.)
2. Liquidity Preference: I would focus on participating perference and will not allow mutiple preference. "Kick-outs" is actually a good term for us because it motivates us to generate certain level of return for our investors and gives us preferred liquidity position after achieveing the return requirement.
In addition, I would also include other terms such as pay-to-play, vesting, employee pool and antidilution.
Control Terms
1. Board of Directors: first of all, I prefer not to have a board observer as I don't see value of this position, especially in the case of BetterPartners. Second, I plan to form the initial board with Founder, CEO, Foundation, a second Foundation and an outside board member.
2. Protective Provisions: from my perspective, protective provisions are reasonable for both investors and investees. Therefore, we are open to include protective provisions in the term sheet. And according to Feld and Mendelson's Venture Deals, these clauses have become standardized. One point I shall pay special attention is when future financing or investment occur, I should negotiate with future investors to have them vote as a single class.
Additionally, I would also include other key terms such as drag-along agreement and conversion.
I'm glad that you already have the founder economics sorted out, that you know your capital needs, and that you have a good list of potential donors. Would these foundation be making donations or would they make an investment (for securities of some kind)? If it is an investment, I might think of it like convertible debt. There would be in interest rate and a liquidity preference (because it is debt). The idea would be that at some point in the future you will repay the loan with interest or it will convert into equity at a predetermined valuation. My guess is that your investors will want board representation of one kind or another. The key for you now is to get to know these potential funders much better, so you can understand their motivations and their needs with respect to a financing.
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