"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


"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


"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 breaks down the evolving power dynamics between VCs and founders in Southeast Asia, diving into board control, investor rights, and why most startups fail despite support. He shares practical lessons from both sides of the table, highlights the return of convertible debt, and explains how founders should think about conflict, dilution, and boardroom politics.

00:54 Key Investor Rights and Control: Jeremy outlines the top 10 investor rights such as drag-along, tag-along, and anti-dilution. These clauses define how power and decision-making are structured in startup financing.

03:47 Conflicts of Interest in Startups: He explains how interests between founders, board members, and shareholders evolve over time. Alignment becomes harder as companies grow and stakes increase.

08:26 Convertible Debt and Financing Trends: Jeremy describes why convertible debt is gaining traction again. In uncertain markets, it offers downside protection and upside potential for investors.

10:22 Board Dynamics and Founder Control: Founders in Southeast Asia often lose control by Series A. Jeremy explains how board decisions work, how founders can push back, and what happens when alignment breaks.

(00:54) Jeremy Au: there are also top 10 investor, I would say control rights. There are linked the equity (01:00) outcomes that are quite key for you to be aware of. the first is the right to information. a lot of investors may not have the right to understand or hear updates from the company.

(01:08) So for example, recently there is a deal, there is a secondary transaction that's available for people to buy secondary shares in open ai. So open AI has a shareholder that was a sale. Then there's a fund manager that's willing to structure SPV, and then they are working with another entity in Southeast Asia, and then they're distributing this to the network, right?

(01:29) So several layers. These people buying secondaries open AI are obviously excited about opportunity. To do that. My wife and I discussed it and we're like, wow, open AI is losing a lot of money. So buying at a premium the current round doesn't seem like a good idea. But one of the key concerns we had was that there isn't a right to information, no ability for us to access.

(01:48) The financial reports are the key business updates because again, a shareholder selling to multiple vehicles, all that stuff. So right information is key to decide. Secondly, of course, is the right to vote. for example you may want to approve a (02:00) merger or change the board.

(02:01) 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 in terms of liquidity, waterfall.

(02:16) Next the right of first refusal. If new investors are, included, do you have the chance to say, Hey, I wanna buy these shares first. Drag along rights are key because when a majority shareholder, wants the company to sell minority shareholders can veto the deal.

(02:30) drag along right, is basically saying if the majority shareholder says yes, everybody has to come along. Because you can't sell 80% of the company, right? You need to sell 100% of the company to a new entity. Tag along rights is a way for minority shareholders to ride.

(02:44) If a majority shareholder sells their. Shares prorata preemptive rights are abilities for them to buy up more ownership or keep them. And lastly, of course, is conversion rights are you allowed to convert your shares into the target class of shares before an IPO exit?

(02:59) these are (03:00) all common clauses for you to be aware of. There are multiple tiers, equity shares and par parcel is a way of allocating that may not necessarily be the case. every shareholder that comes in may renegotiate how that is done. So I wouldn't say there's a market standard. in America where there's more competition by capital for startup founders, the legal documents tend to be more market normal or market standard because found VCs who have highly deviated from that tend to get shamed or blacklisted by founder syndicates unions or networks in Silicon Valley.

(03:38) But I would say that in emerging markets, there's much more variation. It tends to be renegotiated every round. it doesn't matter where it is in the company, it tends to be renegotiated every round. In practice when there are conflicts of interest between founders and investors, such as whether accept dilution, new funding round, how do you balance the, determine what is in the best interest of the company?

(03:54) That is a common debate. And that happens for public companies as well. Generally you'll be a vote by the board of (04:00) directors followed by potential vetoes by major shareholders that have negotiated that So I can tell you that, my wife made an angel investment in one company. I was not a fan of the investment but so be it. two years down the road the founders decided to make a pay to play. So basically what he said was that we need to more money and we swear that we're doing well.

(04:23) And if you give us money, you'll get to top up and get bonus shares. But if you don't participate, you get significantly diluted, more than proportional, right? Which was a very heavy handed way to approach minority shareholders. because of the lack of transparency about their prior financial information but also some perspective that I didn't really feel like the company was going to continue doing well and because of the way they're treating minority shareholders badly. I was like, this makes no sense to put more money to buy a lot of, bonus shares and expense of minority shareholders.

(04:57) But in the next round we as minority (05:00) shareholders will continue to be, take an advantage of again, right? So if this is how they treat minority shareholders, let's just write off this investment. I've said the way they currently treat minority shareholders is suboptimal even tactically because it reviews to future shareholders that you do not respect their shareholder interest.

(05:17) So they're gonna be much more draconian in how they negotiate future agreements with you. So I've told them that you like counterproductive to do this because this done this very simply. But then, again, as a monetary shareholder, I don't even have the right to speak with the founder dramatically either.

(05:31) So that's that. How should founders handle potential conflicts of interests between their responsibilities directors and their obligations to investors and shareholders? Are there scenarios that you've seen where these duties have conflicted and what might those have been? I think there are multiple conflicts of interests because I think when you start the company, and I myself was a founder, when you start the company, you are just yourself and your co-founders.

(05:52) So the, it is easy. A hundred percent are alignment, right where the board is, the Tree co-founders, the company is Tree (06:00) Co-Founders, and our interests as shareholders that are three co-founders, right? But obviously that changes over time. I think when times are good it's easy to balance it because it's dividing the spoils.

(06:09) And I think that the board has a obligation to repre represent shareholders, but the board actually primarily represents majority shareholders. founders have to be the most thoughtful for all of them. I think that's where I think VCs and institutional funds have more power because they have the ability to go to court, for example, to seek redress or compensation if they're cut out, So I think there's some sort of checks and balances at all levels to make sure they all works out when things go well. Obviously there's lots of scenarios where things have not gone no. So for example, in FTX it technically had a board by Sam Beckman fright, but SBF called it a rubber stem committee where he would just send them a DocuSign and it was just automatically sign stuff that it had.

(06:54) So it wasn't necessarily seen by him as an actual control (07:00) entity. shareholders could potentially have done that due diligence, say, does this bot actually want to represent my requirements and my interest as well? So not necessarily always easy. So a VC investment portfolio, about 90% will fail. I think that there is maybe three trenches, I would say the first, of course, are companies that are doing well already. The second challenge would be companies that could potentially do if they have the right support.

(07:27) And then the third of course is companies that you judge are less likely to be able to turn around despite support. most VCs would try to support tier one but they might find that the founders don't even need their help. And I think VC spent quite a bit, maybe a trench two, I would say where they feel like there's still a chance of pulling a rabbit out of the hat.

(07:45) And then they tend to write off the trench tree, that being said, of course the way they have already compensated for that is, again, economically the model does not require Trans Tree to succeed. So I think what the good thing about institutional VCs, they're professional about it, is (08:00) that when the founder fails in Trans Tree, they don't make it personal.

(08:04) They're thoughtful, they're supportive, 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. So I think that's the approach of how to add value as a VC not being an asshole about it, but being helpful and helping them do that.

(08:21) Because the fact of the matter is that most startups will fail regardless of how much a VC will show in support or not. Convertible debt is coming back. price equity runs, I say historically were used for almost all investments like 20 or 30 years ago.

(08:35) a safe note has only emerged over the past 15 years as a standard norm for early stage startups. But convertible dev 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 20 million valuation, or 50 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 (09:00) for me to tell what the price for the next round is. so I wanna 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 20% discount on the next round in one year's time.

(09:13) So you get 20% bonus shares for coming in one year early.

(09:17) convertible notes are coming back for, in these tough times. Because for family offices for like growth equity funds, one of the benefits of convertible node is that for as long as the convertible node is outstanding for the next one to two years. Or three years, they are recognized as debt.

(09:35) And so if the company fails the next one to two years and the company only sells for 20 million or $30 million, 'cause you a debt, you're able to extract your money first. you're taking on much less risk for this short time period, but gives you that bonus upside again to share rewards when they start resuming that growth trajectory So I would say convertible debt financing is more common in emerging markets. So I think we see this resurgence in China as well (10:00) as emerging markets because again, they feel like a lot of the startups may not necessarily be able to grow into unicorn. And so they want to use that, they wanna be able to extract the money as collateral so it caps the downside, but lets them keep the upside as well.

(10:13) So yeah, I think in general, a founder would always prefer to do a price round. Or safe note in general, doing a convertible depth is normally a sign that is not preferred for them

(10:22) so I think founders tend to lose majority economic control and therefore also majority bot control roughly around, I'll say series A or series B on average in the us and maybe around Series A for Southeast Asia because of the, southeast Asia, they tend to take a larger bite of your company to compensate for the higher risk of your company.

(10:44) So I think once you lose majority, then you lose that, control, right? And then founders don't really necessarily have a veto, right? Because they normally control common stock, which is the most basic stock form of stock, which does have voting rights, but. To some extent (11:00) may not necessarily have actual any veto rights available to it.

(11:04) So that's number two. The third of course, is that technically as management, they do have a veto in the sense they can choose not to do something. For example if a VC says you should, you must sell the company, you vote to sell the company, the founder can be like, I don't wanna do it.

(11:16) And then there can be a dispute, and then that would be a, effectively a veto by the founder not executing the decision by the shareholders or by the board directors. So that can be quite messy piece. So I think a lot of boards obviously try to make sure that the founders are bought in, or at least one of the founders are bought in.

(11:31) The classic story of a lot of them is like one founder votes. If you saw that for open ai so the founders were there as a nonprofit. Technically the majority voted to kick out Sam Altman, but some people were not aware. And so they were not part of Quorum or some of them voted against it.

(11:47) Boards don't really wanna run the company, so they only wanna meet every quarter. And all they want to hear is this company is doing really well. Which, so you tran one, right? It's like I, I came from a quarterly board meeting and I was like, wow, your company grew two x over the (12:00) past three months.

(12:00) Good job. By the end of this year you're gonna grow 10 times. So that's all they want to hear. And then they, everybody logs off and says, and they go back home and you tell the shareholders, wow, this company's gonna grow 10 X this year. That's all they wanna do. What they don't really wanna do is get into very deep technical every shareholder just wants to milk. Not everybody wants to be a board director. And, but of course, as a board director, you have higher responsibility, you have more control rights, you have more voting rights by compensation for that. You need to do more work now, right?