Startup Data Standardization Association
Startup Data Standardization Association has updated its investment contract template “SEEDs” for financing using class shares to support non-participation type.
Compatible with the non-participating type of preferential
distribution of residual assets, which is a global standard. An explanatory document will also be released at the same time! ……
The Startup Data Standardization Association (hereinafter referred to as the “Data Standardization Association”), a non-profit organization that aims to standardize and digitize various data of startups, has released SEEDs, a template for investment contracts for financing using class shares. We would like to inform you that we have released a new version of the residual property preferential distribution right that supports the non-participatory type, as well as a new explanatory document.
[Image: https://prtimes.jp/i/109715/5/resize/d109715-5-7ae7e19463efdf06fa57-0.png&s3=109715-5-dd1667ade14826831a422a6b238db02b-1920×1008.png ]
Startup Data Standardization Association has updated its investment contract template “SEEDs” for financing using class shares to support non-participation type.
■Overview of SEEDs
SEEDs (Seed or early stage Equity Engagement Documents) are a set of investment agreements and guidance for startups at the seed/early stage that use class shares to raise funds for the first time. Equity financing for startups is carried out by making extensive use of “class shares” and “stock acquisition rights,” which are rarely used by general small and medium-sized enterprises. However, these contract documents were not standardized, and each startup/investor was forced to create their own documents. As a result, valuable time and resources have been wasted on high legal costs and complicated remediation efforts.
At the Startup Data Standardization Association, we are working on creating templates for documents related to registration and stock practices, so that those involved in startups can devote their precious time and money to their business. As the first step in February 2024, we released the template “SEEDs” for raising funds using classed shares, and we have received positive feedback from everyone in the startup ecosystem.
■Background of SEEDs version upgrade
Japan’s startup ecosystem faces major issues with startup exit strategies, such as the so-called small IPO problem and the extremely low number and scale of M&A (corporate acquisitions) compared to the United States. The government has also set “diversification of exit strategies” as one of the pillars of its “Five-Year Startup Development Plan,” and has proposed measures such as reviewing the IPO process and creating a tax system to promote open innovation. One of the causes of this problem is the unique Japanese approach to investment contracts. In Japan, “participatory” contracts, which are far from global standards, are the norm and are extremely advantageous to investors. This “participation type” refers to the method of distributing assets during M&A. Specifically, it works as follows: For participatory:
First, preferred shareholder investors will recover the full amount invested. The remaining money is then distributed to all shareholders, including investors.
For non-participatory:
Preferred shareholder investors only get back the amount they invested. The remaining money will be distributed to common shareholders (mainly founders and employees).
*Preferred shareholder investors can also receive distributions according to their shareholding ratios, just like common shareholders, by converting their preferred shares into common shares.
The participatory model that is mainstream in Japan has double benefits for investors, but it is a disadvantage for entrepreneurs. This discourages entrepreneurs from engaging in M&A, and is one of the reasons why they choose small-scale IPOs.
In light of this background, our association has decided to review the SEEDs investment contract template for raising funds using classed shares and to release a new version that also supports
“non-participation type.”
We hope that this revision will lead to the spread of
non-participatory investment contracts in Japan and contribute to the diversification of exit strategies.
▼Click here to request the newly released non-participatory template https://share.hsforms.com/1toyiIL5RSa6AWlyyI6okOAqjjql
■Publishing explanatory documents
In conjunction with this version update, the Startup Data
Standardization Association Registration WG team of the SEEDs creation team has released an explanatory document.
This document summarizes the practical issues related to class shares and investment-related contracts, and then explains the
characteristics of SEEDs, how to operate them, and examples of registration.
▼Click here to request newly released explanatory documents
https://share.hsforms.com/1toyiIL5RSa6AWlyyI6okOAqjjql
■Contact us
For inquiries regarding this matter or the association, please contact us below. Startup Data Standardization Association
Secretariat: staff@startupstandard.org
HP: https://startupstandard.org
This article has been partially generated with the assistance of AI.