Pre-IPO term sheets in Asia tend to accumulate protective provisions: valuation ratchets tied to the listing price, redemption rights if the listing has not occurred by a fixed date, and liquidation preferences that multiply through successive rounds. Each is rational from the perspective of a single investor. Taken together, they frequently make the company harder to list.
What the exchange and the sponsor see
Complex preference stacks must be unwound before listing, and the negotiation over who gives up what can delay a timetable by months. Ratchets create uncertainty over the share count. Redemption rights create a contingent liability that auditors must assess. Experienced sponsors flag these issues early and price them into their advice on timing and valuation.
Our preference for simplicity
- We favour ordinary shares, or simply structured preferred shares that convert cleanly at listing.
- We accept a fair valuation today rather than a high valuation protected by a ratchet.
- We rely on governance rights, information rights and board representation rather than on economic penalties.
- Where downside protection is genuinely necessary, we prefer a structure that falls away automatically on listing.
Why we can afford to
Because we are not constrained by a fixed investment period and are under no obligation to exit at the listing, we do not need the protections that an investor with a fixed life requires. We are comfortable remaining a long-term shareholder in a private company if the listing is delayed, provided the business is sound. That allows us to offer founders cleaner terms, and it tends to make us the investor they call first in the next round.
“We accept a fair valuation today rather than a high valuation protected by a ratchet.”
Simplicity is not naivety. We conduct the same diligence, negotiate the same information rights and expect the same governance standards as any institutional investor. We simply prefer to place our protection in the quality of the business and the strength of the relationship, rather than in provisions that may never be enforced and that make the company harder to take public.