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startup lawyers

It seems like everyone you meet these days has founded a startup, works at a startup, or wants to sell you a package for startups. Or maybe we spend too much time hanging out at tech incubators?

A typical engagement with a Southeast Asian startup involves helping the business set up in, or flip to, Singapore. We then put in place governance documents such as a constitution, shareholders’ agreement and founder vesting documents.

Early on, we help Singapore startups get investment ready, taking care of the legal basics that investors expect to see covered. As your business grows, we also advise on company or group structuring, contractor arrangements and employee share incentive schemes.

We understand that cash is tight, yet there are endless issues to think about. To help out, we’ve developed free legal templates which you can use to cover the basics when you are just starting out. These tools are also a great learning resource.

Our team has learnt a massive amount about tech business over the years. Our startup clients get the benefit of that experience as part of the package, whether we are on the clock or catching up over a coffee.

"Kindrik Partners were instrumental to a fast and favourable outcome on the round.

As first time founders, we relied on their partnership for not only support with the necessary documentation, but advice on standard processes and critical regional context on terms."

will hanschell, founder, pencil

top 10 legal templates for startups

From venture capital to drafting governance contracts, we help startups every day with their legal needs. We’ve rounded up our most popular templates and tips for putting this paperwork in place.

go to the guide

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how to issue equity to your advisors (shares vs options)

Advisors help startups by offering expertise or perspectives that the core founder team may not have. Since most startups don’t have the cash to compensate these advisors, a common way to pay for their guidance is to offer equity.

We are often asked how companies should best go about this. In this guide we cover the types of advisor equity (shares versus options), how vesting can be incorporated, what else to cover, and other common questions.

types of advisor equity

When offering equity to advisors, there are two common roads to take: either giving shares, or granting options. The fundamental difference between shares and options is that if someone owns shares, they are immediately a shareholder in the company. If someone owns options, they have the right to purchase shares in the future.

share issue

Shares are a straightforward way to compensate an advisor. In most cases, advisors prefer shares rather than receiving options under the company’s option scheme. Like any share issue, the company will need to pass board and shareholder resolutions, as well as receiving necessary waivers and consents under the constitution and shareholders’ agreement in place. For that reason, a company intending to issue shares to advisors in the future usually carves this out under the constitution and shareholders’ agreement in the same way as they would an ESOP.

granting options

Options are an alternative way to compensate an advisor, and can be granted easily if a pool of options (such as an ESOP) has already been established. However, often advisors can come on board before the ESOP is formally set up.

If options are issued to an advisor, in the event that the advisor wants to exercise their options and convert them into shares, they will need to pay the ‘exercise price’, which may be around the price that the investors paid in the last funding round. This means that they will need to come up with cash to exercise their options.

how much to give?

There are different models to decide how much equity to offer. The Founders Institute gives a useful framework based on the stage of the company (idea, startup, or growth) and based on the various levels of engagement. This is really just a guide however.

Idea Stage Startup Stage Growth Stage
Standard: Monthly Meetings 0.25% 0.20% 0.15%
Strategic: Add Recruiting 0.50% 0.40% 0.30%
Expert: Add Contacts & Projects 1.00% 0.80% 0.60%

https://fi.co/insight/the-founder-institute-s-standard-advisor-agreement-for-startups-fast

vesting schedule

Advisor agreements typically have a vesting schedule of around 12-24 months, i.e. they are shorter than vesting schedules for founders and employees under an ESOP. This is because advisors generally bring greater value over a short term. As your startups grow, it cycles through different advisors that fit their applicable stage of growth.

Some advisor agreements also contain some measure of ‘claw back’ if the advisor does not perform make the expected contributions over the agreed period. An alternative to a provision like this would be using a cliff of 3-6 months to provide for a ‘test run’ to see if the relationship is beneficial.

other provisions

The advisor should agree that all intellectual property and other business, technical and financial information that the advisor obtains from the company or learns in connection with his or her services is appropriately assigned to the company.

As a minimum, the advisor should be subject to confidentiality provisions. You may want to add a no-conflict provision, and also a provision that the advisor complies with certain company policies.

Finally, there is usually a termination right for both parties and sometimes automatic termination if the company has not requested that the advisor render any services for a lengthy period.

tax implications

Options and shares are treated differently with regards to how they are treated in a tax sense. Generally speaking if you are issued shares for services, you would expect to have an income tax liability whereas options do not trigger a liability until exercised. We recommend obtaining tax and accounting advice before putting in place any advisor agreement.

advisor agreement template

We have produced a simple template agreement that a startup can use when bringing an investor on board. The template is drafted on the basis that the advisor receives shares, and that no cash compensation will be paid. It also provides that some of the shares may be clawed back by the company if the advisor fails to make the expected contributions over the agreed period, which is usually one or two years.

You can download our advisor share agreement template here. If you have any questions regarding the template or want to work with us to draft your advisor agreement, get in touch.

a primer on post-money SAFEs in Singapore

In the last few years, convertible notes have been frequently used on Singapore financings. Perhaps less common has been the use of SAFEs – the instrument created by Y-Combinator (YC) several years ago. However SAFEs are on the increase on fundraising deals across Southeast Asia.

Two years ago, YC reinvented the SAFE and launched what is now known as the ‘post-money’ SAFE. And just last month they released beta versions of the “Valuation Cap, no Discount” post-money safe and side letter specifically for companies registered in Singapore. You can access these here.

quick reminder – what’s a SAFE?

A simple agreement for future equity – in short, it’s an instrument convertible into shares similar to a KISS or convertible note. What’s different with a SAFE is that it doesn’t typically have any interest accruing, nor any maturity date and repayment obligation. They are therefore seen as a founder friendly investment tool to raise capital.

Like KISSes and other convertible notes, SAFEs typically convert into shares on the basis of a conversion price which is usually an agreed discount to the price of the next equity round, but which is subject to an overall valuation cap – i.e. whichever gives the lower price for investors.

so, what changed with the ‘post-money’ SAFE?

post-money SAFEs don’t dilute each other (bad news for founders)

The main change is that the new SAFE uses a post-money valuation cap instead of pre-money. The drafting change is fairly subtle to see: the definition of Fully Diluted Capital in the SAFE is amended to reflect the new principle. However, the impact can be significant. It means that the company’s valuation for calculating the conversion is “post” (i.e. after) the conversion of any other SAFEs or convertible instruments issued by the company, but prior to the valuation of the company immediately after the equity financing round. This results in further dilution for founders on conversion and potentially to any other investors that do not hold post-money SAFEs.

Just to be clear and to dispel a myth, by ‘post-money’, this is post all other SAFEs and convertible notes, but not post the next equity financing as well, as some founders have asked. That really would cause dilution!

Under post-money SAFEs, the post-equity financing option pool is no longer factored into the pre-money calculations, which actually benefits founders from a dilution perspective. Under the original SAFE, option pool expansions resulted in SAFE investors receiving additional shares. However, overall this doesn’t balance out the additional dilutive effect outlined above.

you’ll only feel the impact with multiple rounds of SAFEs

It is worth pointing out that for a company that only ever raises one SAFE investment round, a post-money SAFE has no real impact. Rather, it comes into play when more than one series of SAFEs or other convertible notes are issued. In Singapore, we perhaps see this less commonly than say in the US where substantial amounts are often invested using SAFEs and other convertible instruments, and not only in the first round of investment.

easier to calculate cap table (good news for founders)

YC’s view at the time of launching the new SAFE was that it makes the maths simpler for everyone and creates more certainty over ownership and dilution. Which is probably true. But if you issue more than one round of SAFEs or other convertible notes, and you use post-money SAFEs, founders will likely experience more dilution on conversion than they would have done under the original YC SAFE, simple as that.

In light of this, if presented with a post-money SAFE, founders may want to negotiate up the valuation cap to mitigate against the dilutive impacts potentially coming into effect.

what else did YC change?

The original YC SAFE granted holders a pro-rata right on the next financing round. The new SAFE doesn’t automatically include this. Instead, YC put out a separate side letter on their website under which these additional pro-rata rights might be granted.

Also, the old SAFE could only ever be amended by the holder. The new SAFE on the other hand permits amendments by written consent from a majority of SAFE holders. This is something we think is valuable on all convertible instruments, i.e. the holders effectively make decisions on a consensus basis, avoiding one single small investor taking a different view holding things up.

other key points to remember about a SAFE

Not specific to the new post money version, but whenever drafting or reviewing a SAFE, keep these tips in mind:

  • Look out for most favoured nation (MFN) provisions. These enable early investors to have the benefit of any rights granted to future SAFE holders which might be more beneficial. If nothing else, it can be a burden reissuing new SAFEs on these better terms to lots of prior investors.
  • SAFEs typically convert automatically on completion of the next equity financing. There should ideally be no minimum amount to be raised to trigger this automatic conversion under a SAFE. Some investors like to include a threshold to ensure it is a legitimate fundraising round. Always be careful you do not go too high with this so as to prevent automatic conversion of the SAFE.
  • A SAFE (like all convertible instruments) should include language to the effect that, on conversion, holders will only have the benefit of their lower conversion price for the purposes of liquidation preference and anti-dilution rights. This can be achieved through issuing a separate class of “shadow” preferred shares, or just by drafting carefully the relevant provisions in the constitution and shareholders agreement put in place on the equity round.

round up

If you are presented with any kind of SAFE right now, it will most likely be the post-money version, so come and have a chat to us.

 

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mclinica-simmonds-stewart-client

mclinica

mClinica is a Singapore-headquartered health-tech company which provides data, analytics, and patient engagement tools for healthcare organisations in Southeast Asia. In 2017, mClinica closed a USD$6.3million series A financing round, with Kindrik Partners advising the company.

Founder and CEO Farouk Meralli talked to us about mClinica’s journey to date and working with Kindrik Partners.

the mClinica story

Whilst working for multinational pharmaceutical companies, Farouk identified issues in the healthcare sector in emerging markets. Pharmaceutical companies and public sector entities (NGOs and governments) lack access to consolidated data that similar companies in developed markets have. This is particularly so in Southeast Asia where pharmacies are mainly independent owner-operated businesses rather than the large branded chains that you see in established markets.

This led Farouk to start mClinica to connect pharmacies on a common mobile platform. The company launched in the Philippines in 2013, and has since expanded to Indonesia, Vietnam, Thailand and Malaysia.  By the end of 2017, mClinica had connected over 60,000 pharmacy professionals and 12,000 pharmacies on a single digital platform. This platform now addresses several challenges in healthcare including education and engagement of pharmacy professionals, pharmacy-driven patient programs, and last-mile data.

Farouk recently received the Public Health Innovator Award from Harvard University for his work with mClinica, and was the youngest ever recipient of the award.

challenges

Due to the fragmented nature of the healthcare industry in Southeast Asia, developing mClinica’s products was no easy feat. Farouk had to recruit healthcare professionals who also had expertise in mobile technology, engage with lots of government agencies and regulators, and develop products that were flexible enough to work in different health contexts. However, Farouk’s patience and vision has paid off, with its pharmacy network now reaching approximately 80 million patients per month.

The business has also been through some financing rounds and other corporate transactions along the way, which Farouk admits can be a big distraction from the day job of growing the business – like all entrepreneurs, he just wants to focus on solving real problems for end users.

raising a series A round

mClinica’s series A round was led by Silicon Valley fund, Patamar Capital (formerly Unitus Impact), and joined by UK based Global Innovation Fund, MDI Ventures, and Endeavor Catalyst. Existing investors also took part in the investment round.

The cap raise was to help mClinica grow faster and enter more markets across Southeast Asia.  By 2017, mClinica had a good profile in the regional tech and healthcare scene, and was known to investors.  The company therefore had the luxury of picking investors that had knowledge of the healthcare space and would offer the best long-term strategic value.

In the end, mClinica was able to secure investment from well-known international investors, all of whom believed in the vision of transforming healthcare in Asia. A term sheet followed, and once a lead investor was committed, was agreed fairly quickly.

Farouk described an important aspect of the transaction was discussing the term sheet openly with all interested parties from the outset. This included existing seed investors who required careful management to avoid roadblocks later in the deal process.

working with Kindrik Partners

mClinica has worked with Lee Bagshaw since the incorporation of the business, including advising on seed funding deals with Kickstart Ventures, Spiral Ventures (formerly IMJ Investment Partners) and 500 Startups. Kindrik Partners has helped the company with other corporate and commercial matters, aside from the series A deal.

Farouk says: I believe mClinica was one of Lee’s first clients in Southeast Asia. Therefore to some extent we’ve been on the journey together in what is an exciting but challenging digital market. We feel like we’re in safe hands with Kindrik Partners. The team is very easy to work with and their VC transaction experience is second to none.

what’s next?

Since completing its series A financing, mClinica has continued to expand its pharmaceutical network, work on product development and grow its team. Right now, the focus is still on Southeast Asia, but mClinica’s products are also suited to many other developing countries worldwide.

As a transformative health-tech company operating in emerging economies, we’re proud to have been a part of Farouk’s journey to date.  The digital economy in Southeast Asia will play a great role in improving healthcare delivery over the next decade and mClinica is leading the way.

[Note: The firm’s name was changed to Kindrik Partners in July 2020 and references to the firm’s previous name have been updated.]

fave-simmonds-stewart-client

fave

Southeast Asia’s online-to-offline (O2O) space is hot. Platforms linking online customers with offline services are now part and parcel of daily life, from the likes of well-backed Go-Jek and Grab, to Fave – one of the region’s most exciting new O2O companies.

Fave started out in 2015 as a fitness sharing platform called KFit before stepping into multi-category local commerce with the launch of Fave. The company is connecting millions of customers with thousands of local service businesses including restaurants, cafes, salons, spas, hotels, gyms and more.

Founder and CEO, Joel Neoh, talked to us about their journey and how they have found working with Kindrik Partners.

the Fave story

Fave’s founders Joel Neoh and Yeoh Chen Chow are no strangers to O2O local commerce. Joel started Groupsmore, a daily deals site that was acquired by Groupon in 2011. Joel went on to head up Groupon’s business in APAC, alongside Chen Chow, who led Groupon’s regional operations.

Spotting an opportunity to disrupt the fitness business in APAC, Joel left Groupon to start KFit, the region’s first-ever fitness sharing platform, touted as an Uber style platform for gyms and fitness studios.

After a year of tremendous growth and raising a US$12m series A financing, the company set its sights beyond the fitness space and launched its multi-category platform. It went on to acquire Groupon’s businesses in Indonesia, Malaysia and Singapore.

According to Joel, the pivot to a broader O2O platform was a natural progression for the company, as multi-category local commerce presented a much larger business opportunity. Joel observed that apps with high-frequency use cases tend to succeed in a competitive landscape. Fave was launched with a focus on the food and drink category – a major part of life in Southeast Asia.

Whilst deals businesses have been around for a while, Fave is focused on merchant-first innovation via deeper product development and data science. All with a view to enhancing the customer experience with daily deals and rewards. Joel notes that the traditional deals model only brings in new customers to offline businesses and stops there. To truly add value to local businesses, Fave wants to create an ecosystem where businesses can acquire, retain and re-target customers in the online world.

working with kindrik partners

Lee Bagshaw started working with Joel from the set-up of what was the KFit business in 2015. As well as advising Fave on its VC financing rounds, Lee and Chris Wilson have helped Fave on the three M&A deals relating to the acquisitions of Groupon’s Indonesian, Malaysian and Singaporean businesses.

Joel says that Kindrik Partners provided insightful and comprehensive legal advice that played a key role in helping Fave reach some major milestones. He specifically notes Kindrik Partners team’s considerable expertise in VC and tech M&A, which helped the company efficiently navigate the documentation negotiating during its funding rounds and the Groupon transactions.

The future of O2O commerce in Asia looks bright in Southeast Asia as new generation of digitally savvy consumers come online. Kindrik Partners looks forward to helping Fave continue its rapid journey to become a leading O2O player in the region.

Explore Fave.

[Note: The firm’s name was changed to Kindrik Partners in July 2020 and references to the firm’s previous name have been updated.]

grain-simmonds-stewart-client

grain

Singapore based and venture backed food technology startup Grain has fed thousands of happy customers delicious and wholesome meals, delivered in a few simple clicks.

Yi Sung Yong, Co-founder and Head of Product, recently talked to Kindrik Partners about his company and how he has found working with Kindrik Partners on their first capital raise.

the grain story

With backgrounds in management consulting and previous experience in IT startups, the 4 founders of Grain (Sung, Rifeng Gao, Isaac Tam and Ernest Sim, all recently named in the Forbes Asia 30 under 30 list) wanted to start a new and ambitious business in 2014, so they settled on changing the future of food delivery.

Since its recent beginnings, Grain is now described as a restaurant in the cloud and Uber for food in Singapore. It provides a convenient web and app delivery service for affordable and tasty food that is also good for you, offering 4 different meals each day which rotate weekly. Customers in the busy Singapore areas don’t pay for delivery and have no minimum spend.

After securing significant Series A funding, they now have major plans to offer more meals, improve operational efficiency by adding mobile distribution hub vans, increase headcount namely on the developer side and eventually to expand the business into China, including Hong Kong, and also Indonesia.

challenges

Sung says that given the diversity of food and size of the global industry, competition in the food market is building but there is still plenty of opportunity in the market. Whilst food delivery giant Food Panda largely dominates the South East Asian food delivery scene, acting as a middleman between restaurants and hungry consumers, Grain differentiates itself by offering a complete full stack food service. The entire supply chain is produced and controlled by them from one Singapore site, from the website and app business to cooking and delivery.

He also notes that whilst establishing a business and raising funds can be stressful, post-funding, hiring, onboarding and ongoing people management is their biggest challenge as they continue to grow.

working with kindrik partners

Sung’s previous experience of lawyers was that they were slow moving and traditional type lawyers that did not understand the pace of startup life.

For their first capital raise, Grain were referred to Kindrik Partners partner Lee Bagshaw through 500 Startups managing partner Khailee Ng, along with another Singaporean law firm. The referral happened on a Thursday, Lee got in touch immediately via WhatsApp and the term sheet was ready to go on the Friday. Grain did not receive a response from the other firm until the following Monday at which point the deal was well and truly on its way.

Sung says that it was Kindrik Partners’s speed and execution, WhatsApp versus long emails, moving like a startup that impressed him the most.

Kindrik Partners went on to assist Grain implement several convertible notes to secure short term bridge financing and raise of SG$2,500,000 for their Series A funding round, including investment from NSI Ventures, 500 Startups, Digital Media Partners and Ivan Lee (who founded and sold Thai Express in Singapore).

In addition to maintaining the startup pace and charging extremely reasonable legal fees, Sung really appreciated that Kindrik Partners drafted the documents from a founder’s versus lawyer’s perspective, ensuring the documents reflected Grain’s commercial motives without overkill on the legal jargon; Lee just got everything we thought we required and also pointed out the things we didn’t know we needed.

summing up

Given Grain have already delivered over 100,000 meals to ravenous Singapore residents alone, it’s looking likely that this startup will continue to eat up the market. Kindrik Partners will certainly be ready to move at speed for what seems like an inevitable growth and success.

Explore Grain.

[Note: The firm’s name was changed to Kindrik Partners in July 2020 and references to the firm’s previous name have been updated.]

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