Investing in Private Limited Coy

[LionFlyer]

Hmm. the context here is a pre-IPO company, presumably profitable, seeking investors.

But let's say you are angel investing or series A in tech, some of the things like audited finance statements might be impossible to come by because the company is very raw and you been looking at things like terms sheets (e.g equity for % of co.). The type of due diligence used would be different, IMO. Early stage investing tend to focus more on the fundamentals (e.g does this co. have a viable product and execution plan).

[marandaz]

Hmm. the context here is a pre-IPO company, presumably profitable, seeking investors.

But let's say you are angel investing or series A in tech, some of the things like audited finance statements might be impossible to come by because the company is very raw and you been looking at things like terms sheets (e.g equity for % of co.). The type of due diligence used would be different, IMO. Early stage investing tend to focus more on the fundamentals (e.g does this co. have a viable product and execution plan).

Hi,

Very interesting stuff you wrote there.

Can you explain a bit more on the type of due diligence that you look at ?

And what kind of clauses or conditions in such term sheets you should be putting from the investors perspective? You said audited finance statement is hard to come by, but do you at least request some kind of balance sheet report to check what the assets, cash or debt the raw coy is holding?

Let's say you are investing in facebook in its infant years or when its office is in their uni dorms. What kind of term sheet you want to draw up

[LionFlyer]

Term sheets

https://www.techinasia.com/talk/avoid-si...term-sheet
https://www.techinasia.com/singapore-sta...save-grief

I am not a investor so I dunno, but those in near term ones can be as bare as an idea. So the type of investors are different than say, a more mature company. Met a founder of a mature tech company here looking to expand; his description of the private equity folks is akin to the earlier characterisation.

[marandaz]

Thanks once again for all the contributions from all the posters...

Is term sheet the same as signing a "Participation Agreement" form? And what is a "Participation Agreement", is it the SOP contract that people use?

[Triple70]

Hi Triple70,

Can you explain more on the differences between investing a product Vs. business? For the former, do you mean buying the product or...?

And why do you say "Being a shareholder of a pte ltd company managed by a stranger can not be considered an "investment"". what do you mean by this?

Also, what do you by wrong "train of thought". Which part is wrong e.g. the investment thesis or due diligence process? And what should, in your opinion, be the right one?

Lets say CapitaLand buys a piece of land to build a condo, and u very sure this condo is a good investment. Do u buy capitaland shares or buy a unit at the condo?

When u buy shares in a company, what is the security? What is the understanding? Usually the big guys have a MOU or a Shareholders agreement. It is this "Shareholders Agreement", and not the shares, that is the SECURITY.

Different ppl have different definition of "investment". But if u expect some form of security, Shares in SG ACRA context, is worthless. Let's not confuse Sg shares and American stocks context. The environment there is so much more regulated.

If u wanna participate in a blind faith idea.. like someone's singing career, then by all means.. nothing is wrong. But usually ppl want some form of security. Like a Bond note, loan backed by a credible third party guarantee.
  

U mentioned about a "Participation Agreement". It's always rosy. Ask the tough questions about the pessimistic scenario, if things dun work out.. what is the exit plan. And what if the CEO pays himself 20K a month while driving a company lambo,  is that specifically dis-allowed?

[marandaz]

Hi Triple70,

Can you explain more on the differences between investing a product Vs. business? For the former, do you mean buying the product or...?

And why do you say "Being a shareholder of a pte ltd company managed by a stranger can not be considered an "investment"". what do you mean by this?

Also, what do you by wrong "train of thought". Which part is wrong e.g. the investment thesis or due diligence process? And what should, in your opinion, be the right one?

Lets say CapitaLand buys a piece of land to build a condo, and u very sure this condo is a good investment. Do u buy capitaland shares or buy a unit at the condo?

When u buy shares in a company, what is the security? What is the understanding? Usually the big guys have a MOU or a Shareholders agreement. It is this "Shareholders Agreement", and not the shares, that is the SECURITY.

Different ppl have different definition of "investment". But if u expect some form of security, Shares in SG ACRA context, is worthless. Let's not confuse Sg shares and American stocks context. The environment there is so much more regulated.

If u wanna participate in a blind faith idea.. like someone's singing career, then by all means.. nothing is wrong. But usually ppl want some form of security. Like a Bond note, loan backed by a credible third party guarantee.
  

U mentioned about a "Participation Agreement". It's always rosy. Ask the tough questions about the pessimistic scenario, if things dun work out.. what is the exit plan. And what if the CEO pays himself 20K a month while driving a company lambo,  is that specifically dis-allowed?

I see... So the keyword is "security" or a legally binding and enforced agreement that prevents any sort of moral hazard related activities by the agent?

May I know what is a participation agreement? And what is the difference between this and term sheet?

Really appreciate your inputs....

[Triple70]

An agreement can be called many names, its the contents of the agreement that matters.
Term sheet is just a brochere stating the specs, not legally binding or committed.

[gzbkel]

Different ppl have different definition of "investment". But if u expect some form of security, Shares in SG ACRA context, is worthless. Let's not confuse Sg shares and American stocks context. The environment there is so much more regulated.

Hi, could you elaborate more on why sg stocks lack security? Thanks!

[Triple70]

Different ppl have different definition of "investment". But if u expect some form of security, Shares in SG ACRA context, is worthless. Let's not confuse Sg shares and American stocks context. The environment there is so much more regulated.

Hi, could you elaborate more on why sg stocks lack security? Thanks!

U hv brought up an interesting question. 
The best answer is " why do u think it offers security?"

[gzbkel]

^^ Everything is relative, there is no absolute security.
Your statement implies that US stocks offer more security due to regulations.
Care to share about what is lacking in Singapore?