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Han Kun's 2018 Data Analysis Report for VC PE Deals

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Han Kun's 2018 Data Analysis Report for VC PE Deals Han Kun’s 2018 Data Analysis Report for VC/PE Deals March 27, 2019 © 2019 Han Kun Law Offices. All Rights Reserved. Introduction Han Kun represents investors and companies in a wide variety of venture capital and private equity transactions involving both onshore and offshore structures, and RMB and USD denominated investments. Clients include well-known PRC and international institutional investors and cutting edge start-ups from various sectors We compiled data from over 600 venture capital and private equity transactions that we closed in 2018, summarizing and analyzing key legal provisions, including investment structure, anti- dilution, redemption, co-sale, transfer restrictions, right of first refusal, liquidation preference, protective provisions, ESOP, preemptive rights, board appointment rights, dividends, governing law and dispute resolution, etc. We hope that our data and analysis will be a useful guide for the industry Note: This report compiles data from legal provisions in over 600 Han Kun transactions in 2018 that closed. It does not include all venture capital and private equity transactions that Han Kun was involved in during 2018. This report does not analyze legal provisions in fund formations. 1 Introduction (Cont’d) Han Kun’s VC/PE Transactions in 2018 Transactions by Quarter Transactions by Currency Transactions by Investor Strategic Q1 HKD Investors Q4 22.03% 0.51% 16.44% 27.12% USD 39.83% RMB Q2 59.66% Q3 23.90% Financial 26.95% Investors 83.56% In 2018, the aggregate amount of venture capital and private equity transactions Han Kun participated in exceeded RMB 300 billion Note: Transactions led by strategics are categorized as strategic investment deals. 2 Investment Structure Investment Structure Offshore Structure Onshore+Offshore Structure JV WFOE Structure 12.03% 1.20% 11.63% Offshore Structure Onshore 25.08% Structure 61.69% VIE Structure 88.37% 3 Liquidation Preference 1 Participating vs. Non-participating Key 2 Liquidation Preference Waterfall Points 3 Consequences of Various Triggers 4 Liquidation Preference (Cont’d) 86.03% Participating Liquidation Preference 84.68% 6.42% Non-participating Liquidation Preference 9.91% 7.54% No Liquidation Preference 5.41% Onshore Offshore 5 Liquidation Preference (Cont’d) Onshore Structure Liquidation Calculation Liquidation Amount Range Average Liquidation amount is a (50%-160%) of the investment 116.21% of the investment percentage of the investment amount amount amount Liquidation amount is a 100% of the investment 100% of the investment amount+(8%- percentage of the investment amount+10.04% simple 24%) simple interest amount+simple interest interest Liquidation amount is a 108.33% of the investment (100%-150%) of the investment percentage of the investment amount+9.92% compound amount+(8%-15%) compound interest amount+compound interest interest 6 Liquidation Preference (Cont’d) Offshore Structure Liquidation Calculation Liquidation Amount Range Average Liquidation amount is a (50%-160%) of the investment 115.83% of the investment percentage of the investment amount amount amount Liquidation amount is a 100% of the investment 100% of the investment amount+(8%- percentage of the investment amount+10.90% simple 24%) simple interest amount+simple interest interest Liquidation amount is a 100% of the investment (100%-150%) of the investment percentage of the investment amount+15.00% compound amount+(8%-15%) compound interest amount+compound interest interest 7 Anti-dilution 1 Full-ratchet vs. Weighted-average Key 2 Adjustment Methods Points 3 Common Exceptions 8 Anti-dilution (Cont’d) 52.47% Weighted-average 71.24% 40.11% Full-ratchet 21.68% 7.42% No Anti-dilution 7.08% Onshore Offshore 9 Drag-along Right 1 Exercising Parties 2 Time of Exercise Key Points 3 Distribution of Proceeds 4 Other Limitations 10 Drag-along Right (Cont’d) Exercise Conditions 4.67% Time threshold 4.91% 21.43% Valuation threshold 23.66% 17.31% Time and valuation threshold 20.09% Only approval from shareholders holding 9.89% certain percentage of shares is required 26.79% 46.70% No drag-along rights 24.55% Onshore Offshore 11 Drag-along Right (Cont’d) Exercising Parties Onshore Structure Offshore Structure Requires approval Only preferred Requires approval Only preferred by the founders (or investors holding by the founders (or investors holding their designated a certain their designated a certain directors) percentage of directors) percentage of 46.91% shares 51.46% shares 53.09% 48.54% 12 Redemption 1 Triggers 2 Redeeming Parties Key Points 3 Repurchase Rights 4 Repurchase Methods 13 Redemption (Cont’d) Existence of Redemption Rights Methods of Repurchase Onshore Structure Offshore Structure Only the company has the obligation to 13.75% redeem 75.49% No No The company and the founders are 10.71% 8.85% 61.88% obligated to redeem on a joint and several basis 15.20% The company and the founders are obligated to redeem on a joint and 12.81% several basis under certain 5.88% Yes Yes circumstances 89.29% 91.15% TheThe company company first first has has the the obligation obligation to to redeem;redeem; if the ifcompany the company does doesnot redeem not 11.56% redeemdue to legaldue toor legalfinancial or financial reasons, reaons, the 3.43% foundersthe founders are then are obligated then obligated to redeem to… Onshore Structure Offshore Structure 14 Redemption (Cont’d) Onshore Structure Repurchase Calculation Redemption Range Average Amount Only an agreed investment 140.86% of the investment (100%-200%) of the investment amount amount amount An agreed investment (100%-150%) of the investment 100.42% of the investment amount+simple interest amount+(4%-30%) simple interest amount+9.87% simple interest 101.04% of the investment An agreed investment (100%-150%) of the investment amount+9.12% compound amount+compound interest amount+(4%-30%) compound interest interest 15 Redemption (Cont’d) Offshore Structure Repurchase Calculation Redemption Range Average Amount Only an agreed investment 137.69% of the investment (100%-200%) of the investment amount amount amount An agreed investment (100%-150%) of the investment 101.06% of the investment amount+simple interest amount+(4%-30%) simple interest amount+9.47% simple interest 101.67% of the investment An agreed investment (100%-150%) of the investment amount+10.17% compound amount+compound interest amount+(4%-30%) compound interest interest 16 Redemption (Cont’d) Founders assume redemption obligations Onshore Structure Offshore Structure Not limited to Not limited to the founders’ the founders’ shares shares 32.50% 36.36% Limited to the Limited to the founders’ founders’ shares shares 67.50% 63.64% 17 Right of First Refusal and Co-sale Right 1 Who Has the Right Key 2 Who Has the Obligation Points 3 Procedures 18 Right of First Refusal and Co-sale Right (Cont’d) Right of First Refusal Right of first refusal only applies to transfers made 81.72% by ordinary shareholders 85.27% Right of first refusal applies to transfers made by 14.96% any shareholder (all shareholders, or just the preferred shareholders) 10.27% 3.32% No Right of First Refusal 4.46% Onshore Offshore 19 Right of First Refusal and Co-sale Right (Cont’d) Co-sale Rights Onshore Structure Offshore Structure Ratio for Co-sale＝percentage held by the investor ÷（percentage held by all investors ＋ percentage 94.49% 97.70% held by the transferor） Other co-sale calculation 5.51% 2.30% 20 Dividend 1 Participating vs. Non-participating Key 2 Simple Interest vs. Compound Interest Points 3 Specific Yield 21 Dividend (Cont’d) Existence of Dividend Rights Dividend Yield Onshore Structure Offshore Structure 4.05% Yes No Annual Interest ≤5% 37.36% 36.73% 7.62% No Yes 95.95% 62.64% 63.27% 5%＜Annual Interest ≤10% 92.38% Onshore Offshore 22 Pre-emptive Right 1 Triggers 2 Exercise Process Key Points 3 Pro Rata and Overallotment Calculations 4 Special Restrictions 23 Pre-emptive Right (Cont’d) Super Pro Rata (based only on the shareholding 30.66% amongst preferred investors) 16.14% Pro Rata (based on total shareholding on a fully- 63.26% diluted basis) 80.72% 6.08% No Preemptive Rights 3.14% Onshore Offshore 24 Protective Provisions and Board Appointment Rights 1 Exercising Parties Key 2 Protective Provision Matters Points 3 Board Appointment Thresholds 25 Protective Provisions and Board Appointment Rights (Cont’d) Existence of Protective Provisions Approval Mechanism Onshore Structure Offshore Structure 25.49% Class Voting No No (each class of preferred shares 8.24% 3.98% has individual veto rights) 45.31% 74.51% Yes Yes Combined Voting (certain % of 91.76% 96.02% all preferred shares) 54.69% Onshore Offshore 26 Protective Provisions and Board Appointment Rights (Cont’d) 97.89% Investors entitled to designate a director 92.75% Investors must hold a certain % of shares in 9.97% order to designate a director 22.22% Founder designated directors have more than 0.30% one vote 10.14% Onshore Offshore 27 Information and Inspection Rights 1 Exercising Parties Key 2 Types of Information Points 3 Frequency of Delivery Han Kun Data: 91.86% of transactions have information and inspection rights provisions 28 Founder and Investor Transfer Restrictions 1 Vesting Term Key 2 Exceptions Points 3 Non-competition Obligations 29 Founder and Investor Transfer Restrictions (Cont’d) Founder Restricted Shares Onshore Structure 1 year 0.45% 5 years 2 years 3.20% 1.37% 3 years 11.42% No Yes 39.84% 60.16% 4 years 83.56% 30 Founder and Investor Transfer Restrictions (Cont’d) Founder Restricted Shares Offshore Structure Others
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