"A VC investment portfolio, about 90% will fail. I think that there are maybe three tranches. I'll say the first tranche, of course, is the companies that are doing well already. The second tranche would be companies that could potentially do well if they have the right support. And then the third, of course, is those companies that you judge are less likely to be able to turn it around despite support. Most VCs would try to support tranche one, but they might find that the founders don't even need their help. And I think VCs spend quite a bit, maybe with tranche two, I would say, where they feel like there's still a chance of pulling a rabbit out of the hat. And then they tend to write off tranche three. That being said, of course, the way they have really compensated for that is, again, economically, the model does not require tranche three to succeed. So I think what the good thing about institutional VCs that are professional about it is that when the founder fails in tranche three, they don't make it personal. They are thoughtful, they're supportive of the wind-down process and try to make sure that it's a graceful failure where the founder lands on their own two feet in a new company or a new job or a new profession." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast" - Jeremy Au
"Secondly, of course, is the right to vote. For example, you may want to approve a merger or change the board. Shareholder classes have a right to vote. We mentioned anti-dilution, a preference in dividends. For example, a lot of companies in Southeast Asia may stay private. So do you have the ability to receive dividends? Liquidation preferences—we talked about it as a liquidity waterfall. Next, the right of first refusal. If new investors are included, you have the chance to say, hey, I want to buy these shares first. Drag-along rights are key because when the majority shareholder wants the company to sell, minority shareholders can veto the deal." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast" - Jeremy Au
"Convertible debt is coming back. Price equity rounds, I said, historically were used for almost all investments like 20 or 30 years ago. A SAFE note has only emerged over the past 15 years as a standard norm for early stage startups. But convertible debt is coming back as a norm for later stage startups. So a SAFE note is totally inappropriate for a middle or growth stage or late stage startup. Let's say the company has a $20 million valuation or $15 million valuation or $200 million valuation. They may say something like, I need some capital in the short term to make a decision, but it's hard for me to tell what the price for the next round is. So I want to use a convertible note structure to absorb some capital and then say, if you come in now and give me $10 million, for example, then you get a 20% discount on the next round in one year's time. So you get 20% bonus shares for coming in one year early." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast" - Jeremy Au
In this episode, Jeremy Au speaks on power struggles in Southeast Asia: VC rights, founder conflicts, and the return of convertible debt.
Keywords: Power Struggles Southeast Asia, VC Rights, Founder Conflicts, Return of Convertible Debt, Singapore, Southeast Asia, VC, Startup, Thought Leadership
