Now at this point in time, you should think about a shareholder's agreement. A shareholder's agreement is something that binds all the shareholders. They must comply. And it dictate how they would behave under certain conditions. For example, can a shareholder sell their shares to an outside investor, a stranger ? Or they have to sell it to other existing investors? Now, this is to protect both the company and the existing shareholders, to prevent someone from just selling the shares to anybody. This outsider could be the competitor and that would really has an impact on your company. It could be someone that does not actually add value. And so it has not been screened before and therefore, you may not want this new investor. So this is one of the examples where a shareholder's agreement will dictate how an existing shareholder can or cannot sell their shares; under what circumstances. There are other things like anti-dilution clause, where existing shareholders would have the right to subscribe to the shares if there is another investment round. And typically, they will follow exactly the same terms of the new investors, should they choose to follow the investment round. This is typically to protect the existing shareholders from being diluted down significantly in the case of new money coming in from new investors. Of course, the shareholder's agreement would have clauses for other reasons as well. And you have to decide - typically, you have to talk to a lawyer and talk to someone who are experienced - what are the terms that you need to include in your shareholder's agreement? But this is for your protection. A word of warning. You may think that your existing shareholders are all your buddies or you trust them completely, but there are situations where it will be out of the control of your existing shareholders. For example - I'm not saying that this will happen, but it's just something you need to consider. What if one of your shareholders got run over by a bus and his - he or she, right? This will become his or her estate. So it's no longer in their control. It could be whoever in the will, will control the asset. Would that person be a shareholder that you would like to work with? Another example is what if one of the shareholders is getting a divorce and this asset of your company that they have invested will become a dispute, possibly, in the divorce case. These are circumstances where you cannot control - not even the existing shareholders. So it is wise to have a shareholder's agreement to protect the company and protect the other investors. Another thing you need to think about is what is your company structure? By that, I mean are you going to have a multi-layer holding structure? Where are you going to put your intellectual property and where are you letting your investor invest? Are they going to invest in the top-level holding company or are they going to invest in a lower-level company where you actual run your business? But more importantly, where do you put the intellectual property? As a typical start-up, this is very confusing. The considerations are - you want to think about where you generate the IP and you - where you can actually protect that IP. A word of advice; don't put the IP together with the operation company. Because if you ever get into trouble in the operation company, the IP will probably get into trouble as well. So therefore, a simple structure, like having the IP, intellectual property, in one place and then form a licensing agreement to your own company, a second company, as the service provider. Or you can even license this IP to another company, someone else's company, to actually operate and utilize that intellectual property. So talk to your lawyer, talk to accountant and see what would be the most effective and efficient way of setting up your company structure. As an investor, of course I would like to invest as high as possible in terms of your company structure. I would like to invest in the holding company, because I know that's where you will spawn more companies in the future. Or, I would like to invest where your intellectual property lies, because that's where it really generates values. However, if the operating company that is utilizing the intellectual property and the operating company is actually very profitable because it's doing the business directly with the customer, I will be happy to invest in that level too. So is all a case-by-case basis, but these are all very important to the investor. So think about the company structure. And also, as an investor, I would look at what other protection that I could get. We mentioned the anti-dilution, which can be dealt with in the shareholder's agreement. Some investor will ask for a guaranteed return. It is not uncommon in China, for example. A word of warning. I would try to stay away with these sort of demand, because, you know, guaranteed return, it means as the start-up - as the entrepreneur, you have guaranteed the investors that they will get certain return. And what I see typically, these sort of investor, they will push for an early exit because it's in their interest to get an early exit. And should they actually not achieving the return that they are looking for, you have to came up with whatever is short of that return. And therefore, you has assumed much higher risk than you should. I think these guarantee return crosses are getting very, very unpopular. But you just might see them pop up from time to time. So be very, very careful. These are some of the possible protection that some investor would ask for.
