Zooming in on preference shares

Sign up for the Daily Newsletter, sent exclusively to our premium subscribers. We break down the big and messy topics of Asia’s tech and startup community. Get the newsletter in your inbox everyday with a premium subscription.

Hello reader,

The other day, my brother and I were looking at our insurance paperwork, trying to figure out what coverage we had and exactly what we’d be entitled to in the event we met an untimely end.

Trying to parse the language on the documents gave me a right headache – there were several terms and phrases that you don’t see outside of a legal document, and it’s a lot for the average person to try and understand.

The startup world, too, has its share of paperwork. One of the most important is the shareholder agreement, which holds crucial implications for existing shareholders and the startup’s management. Preference shares are one aspect of a SHA where founders need to tread carefully – we go deeper in today’s premium story.

Today we look at:

• What you need to know about preference shares
• An Indian wealthtech startup that’s raised fresh funds
• Other newsy highlights such as a new unicorn in India and the concerns people have with Malaysia’s new social media licensing framework

Premium summary

Mind what you sign

Image credit: Timmy Loen

Preference shares, which are sometimes called preferred stock, typically play a key role in a shareholder agreement. These shares provide investors certain privileges ahead of common shareholders, particularly in terms of how they benefit financially from the deal and how they influence the company they’re investing in.

It’s important for startups to know what to look for in these shares so that they don’t get the short end of the stick.

• The standard set meal: In Singapore, certain industry standards have emerged regarding the formation of preference shares. Investors with these shares typically have rights related to veto power over shareholder-reserved matters, the right to appoint a director to the company’s board, and the right of first refusal.
• Unconventional clauses: Where startups should be wary is when unusual clauses pop up in agreements, such as having preference shares that accrue interest or grant more than one board seat to investors.
• More than the money: Startups may agree to potentially harmful terms for many reasons. However, they should try to avoid these unconventional clauses. They should also evaluate investors beyond just the money they bring to the table, looking at how else they can support the startup on its journey.

Read more: Preference shares in your startup’s funding deal? Be careful

Startup spotlight

Wealth for wealth

Spoiler alert: yes, and we’re proving it

Quick bytes