"Three Squirrels" is an e-commerce company with nuts as its main business. Five-year sales exceeded 5 billion yuan. Company official website shows: "Three Squirrels Co., Ltd. is located in Wuhu City, Anhui Province, registered on 20 12. It is an industrial chain platform enterprise focusing on R&D, sub-packaging and sales of nuts, dried fruits, tea and snacks. Focusing on the mission of "making the world's masters cool", the business scope has expanded to animation, film and television and other fields. Under the tide of "mass entrepreneurship and innovation", three squirrels have become an enterprise with annual sales exceeding 5 billion yuan from a five-person entrepreneurial team in just five years. Up to now, the three squirrels have more than 3,200 employees, with an average age of 24.5 years old. "
Since 20 12 started its business, its annual performance has doubled in recent years. From 20 14 to 20 17, the revenue was 900 million yuan, 2 billion yuan, 4.4 billion yuan and nearly 7 billion yuan respectively, accounting for 23% of the national nut market and 0/0% of the snack market, and this year it was 16544. The company turned losses into profits in 20 15, and realized a net profit of 8.97 million yuan in 20 16, 240 million yuan in the first half of 20 17, and 24 10/00000 yuan.
However, the company is not always smooth sailing. According to Zhang Liaoyuan, 20 17 is the worst year since he started his business. In August, the media reported that one of its products exceeded the standard, and its growth stagnated in September. The growth momentum of double 1 1 is flat for the first time, and the company's development is facing challenges. In the past year, three squirrels have experienced product remodeling, organizational structure reform, value upgrading and business. For the reversal battle led by Zhang Liaoyuan, please refer to Fengrui Capital's special article: Dialogue with Zhang Liaoyuan: The Reversal Battle of Three Squirrels (2018165438+10).
According to reports, the three squirrels have received financing of RMB 470 million from IDG, Today Capital, Feng Li and other institutions, with a valuation as high as RMB 4 billion, making them the single-item e-commerce brands with the highest valuation. Another official website also revealed the financing situation:
2065438+In April, 2002, we got the angel investment of IDG capital of 65438 USD+500,000 USD, and got the first venture capital.
In May, 20 13, we got another round B investment of $6170,000 from Today Capital and IDG Capital, with a market value of over 250 million yuan.
20 14 In March, IDG Capital and Today Capital increased their C-round investment by 1 billion RMB, with a market value exceeding 1 billion RMB.
From 2065438 to September, 2005, three squirrels received a series D investment of 300 million RMB from Fengrui Capital, with a market value of over 4 billion RMB.
On March 29th, 20 17, three squirrels applied to the CSRC for listing on the Growth Enterprise Market. 10 year 10 20th, they proposed to suspend the examination on the grounds of "changing the contracted lawyer", and resumed the examination after 10 day. 1October 27th 10 Update the prospectus (CSRC website 10 365438+)
The above picture shows the announcement issued by the CSRC on 65438+February 65438+February 02, saying that in view of the fact that three squirrels still need further verification, they decided to cancel the audit of the company (originally scheduled for the meeting on 65438+February 65438+March).
Prospectus and feedback are public information. Three Squirrels is a good case, and some academic discussions can be made on the founder's equity, company financing (capital increase), foreign investment, executive options, gambling with VC and so on.
The above two figures are extracted from the prospectus of three squirrels (declaration draft, 2065438+updated on October 27th, 2007/kloc-0), and the eight direct shareholders can be summarized into five groups:
Entrepreneur Zhang Liaoyuan 44.52% and Liaoyuan investment 65,438+0.86%, and Zhang Liaoyuan's total is 46.38%.
IDG (two overseas limited partnership funds, Nice Growth and Gaozheng) 27.66%
Today's Capital (LT Growth Overseas Limited Partnership Fund) 18.64%
Feng Li's fund is 5.36%. Self-investment is GP, and self-investment squirrel is LP fund.
Guo Song Investment Center 65438
Can also be integrated into three groups:
IDG and Today Capital, two overseas fund investors, accounted for 46.3%. When the two venture capitalists invested, they signed an IPO gambling agreement with the company and entrepreneurs.
5.36% of Li & Fung's funds are investors in domestic funds, but no gambling agreement has been signed.
Liaoyuan's investment is basically Zhang Liaoyuan's (he holds 99% of the shares and his wife Fan Jing 1%), accounting for three squirrels1.86%; Guo Song Investment Center is a platform holding executive options, accounting for 65,438+0.96%. Zhang Liaoyuan is a general partner, who carries out partnership affairs and controls the platform. Therefore, Zhang Liaoyuan controls 48% through direct 44.52% and two platforms (Liaoyuan Investment 1.86%+ Guo Song Investment Center 1.96%).
Among the investors of the three squirrels, Feng Li's role is worth discussing. Feng Li joined IDG Capital in 2008 and became the youngest partner in IDG history. He also led IDG to invest in a series of excellent start-up companies such as CreditEase, Bili Bili and Pig Bajie. 2065438+After the establishment of three squirrels in February, 2002, within two months, Li Feng led the investment of $654.38 +0.5 million in IDG. Since then, Feng Li has been involved in the follow-up financing. IDG continued to vote with round B of 20 13 and round C of 20 14, with Feng Li as the company's director. In the D round of 20 15, Li Fenggang left IDG to set up Fengrui Capital, and he invested with his own fund. This also confirms the saying that "entrepreneurial projects follow investors". Three Squirrels is a collection of works by IDG, but it is also a work by Feng Li.
Fengrui Capital's investment in three squirrels is a beautiful cycle for investors and entrepreneurs. When Zhang Liaoyuan started his business in February, 20 12, IDG Capital led by Feng Li quickly provided key angel development funds. By the middle of 20 15, Feng Li left IDG to start a business, and Zhang Liaoyuan reciprocated by providing high-quality projects for investment in Feng Li (the first generation fund of the new GP team raised funds, and it was urgent to show high-profile good projects to LP). A widely circulated saying: On the fifth day after Fengrui Capital was founded, Feng Li called Zhang Liaoyuan. "I have started a business and set up a new fund. Let me give you some money. " It is also rumored that at the financing meeting on September 16, 2065438, Zhang Liaoyuan said half jokingly, "I didn't want this investment, but I wanted to support Feng Li's entrepreneurship."
However, the name of "Fengrui Fund" did not appear in the prospectus. In the early days of Fengrui's establishment, Feng Li raised mainly US dollars and RMB, and also raised three special funds, including a "self-friendly squirrel" fund that invested in three squirrels. Only after the completion of general projects can special funds be raised. This fund named "Squirrel" is specially raised for investing in three squirrels. As shown in the above table, the important LPs include: self-investment (as GP) accounts for 1.0047% of the fund share, Shanghai Gefei Macro Capital Investment 29.5508%, Song Xiaoping 59.9882% and Han Jing 5.9 102%.
20 15 In July, Free Investment (as GP) bought 0.57% equity from Zhang Liaoyuan at a price of 20 million yuan. Two months later (when the fund was raised), Free Squirrel Limited Partnership Fund invested 166M and bought 4.57%. So at that time, the company's valuation was 3.367 billion yuan, and this Li & Fung Fund (GP and LP) invested in 186M to acquire 5.5% of the shares, which was a little different from the investment of 300 million yuan and the valuation of 4 billion yuan mentioned at the press conference. However, in view of the widespread phenomenon of investment and overvaluation in China (RMB is charged in US dollars, plus one extra zero ...), I think the public relations propaganda of "inductive integer" of three squirrels is still acceptable.
Three squirrels were established as a domestic company (owned by founder Zhang Liaoyuan 100%) with a registered capital of 10000000 RMB. 20 12 In April, the overseas US dollar fund IDG invested 1 0.5 million US dollars, which was changed into a Sino-foreign joint venture, and the registered capital was increased to1,298,701yuan. IDG Nice Growth Co., Ltd. subscribed the newly-increased registered capital of 298,706,5438+0 yuan with US$ 750,094 (the premium is included in the capital reserve). After further fundraising, the company has three foreign shareholders: Nice Growth and Gao Zheng (two are IDG funds) and LT Growth (today's capital fund), with a total foreign shareholding of 46.3%.
Foreign investors generally set up SPV (Special Purpose Company) in Hong Kong and then invest in the Mainland. Take today's capital investment as an example, it has three arrangements (as shown in the first picture above):
LT Growth Investment IX (HK) Limited is a Hong Kong company, which invested in three squirrels twice in May 20 13 and March 20 14, holding 8.64% equity of/kloc-0.
The above-mentioned Hong Kong companies are wholly owned by LT Growth Investment IX Limited (BVI) registered in BVI.
The above BVI company is wholly owned by capital today China growth fund ii, LP registered in Cayman islands.
The top-level Today Capital China Growth Fund II (LP) is a well-known Today Capital Limited Partnership Fund managed by Xin Xu, which has 57 limited partners LP. The second picture above only takes screenshots of the first eight pictures. When a company goes public, it is generally necessary to make a "breakthrough" declaration to its shareholders. Limited partnership fund is a special case, and generally it is no longer required to continue to "break through", otherwise it will continue from the current three floors to the fourth or fifth floor (for example, Axiom Asia and Asia Alternatives are both FoF parent funds, followed by extremely complicated or even multi-layered LP investors), but if it is an ordinary shareholder of the company, it needs to "infiltrate" into nature.
Nice Growth Limited of IDG is also a similar three-tier structure arrangement. Is a limited company in Hong Kong, with 22.96% shares of three squirrels. The upper company is Sunny Rosy Limited of BVI, and Sunny Rossy is jointly established by two limited partnership funds (including LP such as HarbourVest and Hamilton Lane) registered by IDG in Delaware, USA, accounting for 94% and 6% respectively.
IDG's second fund, Gaocheng Capital Co., Ltd., holds 4.7% shares of three squirrels. Because it did not reach 5%, it did not disclose in detail the shareholder structure that "infiltrated" its upper level, but what is certain is that it must be a similar three-tier structure, or at least a two-tier arrangement. Many overseas funds investing in China have adopted a dual arrangement, that is, limited partnership funds registered in Cayman Islands invest in domestic projects in China through a special purpose company in Hong Kong.
The venture capital fund registered in Cayman does not directly make intermediate investment, but through the SPV established in Hong Kong, mainly under some special circumstances (such as the fund is about to expire), it can "sell" Hong Kong companies and achieve the purpose of substantially withdrawing from domestic projects (of course, this indirect withdrawal still has tax payment problems under Article 698). In addition, it is possible to enjoy the preferential treatment of halving the withholding income tax under CEPA in Hong Kong, but in practice, since SPV in Hong Kong is not an operating company,
(Source: 2065438+2007 65438+20071Statement of Prospectus on October 27th)
In the shareholder structure of "Three Squirrels", Guo Song Investment Center holds 65,438+0.96% of the shares, which is the shareholding platform for employees/executives of the company. 20 16 12 18, the Fifth Extraordinary General Meeting of Shareholders passed the Proposal on Implementing Employee Equity Incentive, and Zhang Liaoyuan, as a general partner, and the incentive object (as a limited partner) jointly established five limited partnership enterprises (Guo Song No.1, Guo Song No.2, Guo Song No.3, Guo Song No.4 and Guo Song No.5). Five limited partnerships (as limited partners) and Zhang Liaoyuan (as general partners) set up Guo Song Investment Center as an employee stock ownership platform, and the incentive objects increased their capital to the company through the employee stock ownership platform to obtain shares of the company, totaling 65,438+0.96%.
There are three special places in the employee stock ownership platform of the three squirrels. First of all, it is the design of a two-tier limited partnership. The common practice in the industry is to set up an employee stock ownership platform (generally limited partnership) so that employees can hold the equity (share) of the partnership enterprise. However, the employees of the three squirrels do not hold the shares of the first-level shareholder "Songguo Investment Center", but hold the shares of the second-level shareholder Songguo 1 0 to 5.
The second feature is that the shareholding ratio of employees and executives is very low. In the investment center, Zhang Liaoyuan directly holds 13.33%, while at 1 No.5, Zhang indirectly holds 4 1% to 63.88%, and Zhang holds 57.358% of the investment center, accounting for 1.96%. Compared with ordinary companies granting co-entrepreneurs, executives and employees dozens or even dozens of shares in stages before listing, it is a world of difference.
(Source: 2065438+2007 65438+20071Statement of Prospectus on October 27th)
The third feature of the three squirrel employee stock ownership platform is the low shareholding ratio of co-entrepreneurs and executives. On February 20 12, four partners started a business with Zhang Liaoyuan, but the company's equity was always controlled by Zhang alone. After nearly five years, it was not until the end of 20 16 that the employee stock ownership platform was established, and options were granted to these partners who started their business together and the executives who accompanied the company along the way.
Compared with other internet entrepreneurial teams, the three squirrels are really the founding employees of Zhang Liaoyuan, "diaosi counterattack" and "squirrel father". Some of them are young people who have worked as chefs and opened restaurants, some are subordinates of old employers, some are newly graduated girls, and some are retired teenagers who post and spit on the Internet. There is a joke among the three squirrels: "The five people on the startup team are just a little better than garbage".
The options of the company's elders and senior executives are concentrated in "Guo Song 1No.", holding 33.33% of the shares of Guo Song Investment Center (only 13.33% compared with Guo Song No.2 to No.5, which are dominated by ordinary employees), among which "Rat Crazy" Guo Guangyu (the company's director and founding employee, holds Guo Song 1. Guo Song 1 holds 33.33% of the shares of Guo Song Investment Center; The investment center holds three squirrels (1.96%), and indirectly holds three squirrels (0.039%). Pan Daowei, the "rat political commissar" (director of the company) indirectly holds shares (0.039%), Wei Benqiang (director of the company) 0.039%, "rat crazy" Hu 0.033%, and rat.
(Source: 2065438+2007 65438+20071Statement of Prospectus on October 27th)
On March 29th, 20 17, three squirrels applied to the CSRC for listing on the Growth Enterprise Market. On October 27th, 17, the prospectus was updated. Apart from submitting the financial report for the first half of 20 17, the biggest difference between the updated version and the first version is that it cancels the relevant commitments with investors about listing. The first edition of the prospectus mentioned that when three foreign investors, Nice Growth, Gaocheng and LT Growth, are introduced, there are some special rights arrangements for investors, such as the right to sell, the right to buy back, the right to joint merger and acquisition, the right to priority liquidation, the right to anti-dilution, and the one-vote veto on major issues. The prospectus also mentioned that during the share reform in June 20 15, VC shareholders temporarily suspended the gambling agreement, but at the same time agreed that "if the company fails to achieve qualified listing within 24 months after signing the termination agreement, the special rights will automatically resume their effectiveness". Legally speaking, if the company 20 17 12 17 is not listed, VC investors have these special protection rights and have to start exercising them at any time.
654381October 27th, the second edition of the prospectus shows that the gambling agreements signed by the company with various investors have been terminated, showing that the priority termination agreement and the shareholders' agreement termination agreement were signed with various investors in August and September of October17 respectively. Investors also issued a statement: "There is no written or oral agreement or commitment between me/the company and Three Squirrels Co., Ltd. and its shareholders that involves or may involve investors' investment return commitments, company operating performance commitments, company listing-related commitments, compensation clauses, share repurchase and so on. Whether there are any agreements or commitments that involve or may involve investors' investment return commitments, company performance commitments, company listing commitments, compensation clauses, share repurchase, etc. since the date of this statement. If it is reached with the company and its shareholders in written or oral form, it will be abolished, and the company and its shareholders will not be liable for breach of contract for these matters. "
In my opinion, it is a reasonable arrangement for several investors to cancel the "two-year listing or recovery" agreement signed in June 65438+last year 10+June 65438+February 65438+July 65438. This arrangement of "IPO against gambling" has three consideration nodes: submission of still valid listing application materials, approval and formal listing, and conditional termination agreement signed by three squirrels at the end of 20 15 triggered by "approval", but at the same time, it is stipulated that "if the issuer fails to go public, investors will automatically resubmit the listing application materials unless the parties decide through consultation. Therefore, at the stage when the three squirrels have submitted their materials and are under review, it will be beneficial for the company to go public and investors to withdraw from profits by dissolving the agreement through friendly consultations between all parties and submitting a new prospectus accordingly.
With the specialties and brands of IDG, Today Capital and Fengrui Capital, the agreement in the above official documents will not only be superficial. However, before giving up the special rights, it is uncertain whether the company can go public, which is indeed a major decision for investors. However, based on the operation, performance and listing possibility of the three squirrels, investors should "gamble" to promote the listing of the company, which should be better than "gamble" to get back those privileges without listing.
The above is the slide that I used in the MBA course to discuss the control of equity such as gambling terms. The above-mentioned case of Dinghui-South Beauty can be used as a discussion on the relevant provisions of the "domino trigger", while Taizi Milk is another classic case, which can discuss the impact and influence of the external environment. In order to expand its business, in June 5438+February, 2006, Taizi Milk introduced 73 million US dollars of investment from Lianying, Morgan Stanley and Goldman Sachs, and at the same time, six banks including Citigroup and the Netherlands provided 500 million yuan of credit. Chairman Li Tuchun signed a gambling agreement with the investment bank: within three years, if the performance increases by more than 50%, the equity of the three major investment banks will be reduced; Otherwise, Li Tuchun will lose its controlling stake. However, in June, 2008, 165438+ 10, Li Tuchun transferred 6 1.6% equity to the three major investment banks in accordance with the "gambling agreement", although raising funds everywhere and introducing strategic investors failed. Sadly, Li Tuchun was arrested on June 7, 20 10 on suspicion of illegally absorbing public deposits. The lesson of this case: the operation of the enterprise may face uncontrollable environmental factors (such as melamine and the international financial crisis in this case). These unfavorable factors should be faced and borne by all shareholders, but under the gambling clause, entrepreneurs take full responsibility, while investors enjoy the "dividend" of these unfavorable environmental factors.
The gambling agreement is a double-edged sword. The gambling clause can help both parties to reach an investment agreement quickly, and promise to gamble and pursue a higher company valuation at that time. But to some extent, it also puts the shareholders of both parties who should be in the same boat on the opposite side. Therefore, when signing a gambling agreement, we should not only consider the "exclusion clause" to eliminate the major adverse effects of uncontrollable external environment on the operation of enterprises, but also consider the "guarantee clause" to avoid the huge risks across the board, even in the worst case. In practice, the higher financial target of the gambling agreement may also lead the management to make high-risk irrational decisions, which will be unfavorable to the long-term development of enterprises. You can consider adding more non-financial indicators to the gambling target.
In addition, in terms of legal effect, China's courts have adopted a recognized attitude towards the effectiveness of the gambling agreement between investors and controlling shareholders. The court held that these agreements are conducive to the efficient promotion of transactions, play a positive guiding role in the operation and management of enterprises, and have a certain guarantee for the transactions between the two parties. As long as it does not harm the public interest, the gambling agreement between shareholders is effective; There is a negative attitude towards the effectiveness of the gambling agreement between the investor and the target company, and it is believed that once the target company is triggered and caused to perform the compensation responsibility to the investor, the company's capital will flee and the interests of minority shareholders will be harmed. Compared with courts, arbitration institutions are more open and flexible in their attitude towards investors and companies. As long as the relevant agreements are signed on the basis of following the basic principles of equality, voluntariness, equality of rights and interests, fairness and reasonableness, honesty and credit, the gambling clause itself does not constitute illegal, then it is deemed to be valid.
Take the investment of three squirrels as an example. Foreign VC investments (through three investment funds) all have gambling clauses that restrict IPO, but domestic Fengrui Capital does not have this requirement. The differences between domestic and foreign fund investment terms do not reflect the general situation of the industry. In the investment of venture capital funds in the United States, there are few gambling clauses about limited IPO or limited repurchase (perhaps there are some earning designs in large M&A cases), and there are few such clauses for overseas funds to invest in overseas projects in China. On the contrary, gambling on domestic RMB funds, whether VC or PE, is normal, and it is rare to find gambling clauses without limited IPO or limited repurchase.