SINGAPORE Trends and Developments Contributed by: David He, Benjamin Teo, Kinnari Sahita and Binh Vong, Gunderson Dettmer Singapore LLP
detailed financial reporting, which may require the involvement of independent third-party ven - dors, and seek remedial measures that extend beyond what has traditionally been regarded as standard in venture deals. Investors have already began implementing more stringent transaction terms in 2023. While many of these remained outliers initially, some became more commonplace as 2024 pro - gressed. Examples include: • requiring founders to personally backstop warranties beyond the standard suite of “fun- damental warranties” , including the accuracy of a company’s financial statements and catch-all anti-fraud warranties concerning misrepresentations and omissions during due diligence; • requiring founders to personally commit to certain ongoing covenants, such as imple - menting and complying with internal policies and procedures and disclosing interested- party transactions; • imposing harsher consequences for breach of the aforementioned warranties and cove - nants, including requiring founders to person - ally indemnify investors and agree to “bad leaver” default terms that provide investors and/or the company the right to claw back vested founder equity at a discount; • expanding bad leaver clawback terms beyond the founding team and management to bind all employees and service providers; and • adopting strict banking policies that grant investor directors increased control and over - sight over key bank account outflows. Financial Sustainability Remains Priority VCs and founders continue to prioritise unit eco - nomics and the pursuit of profitability. The path -
way for start-ups to achieve product-market fit, showcase reliable monetisation strategies, and reach break even has been considerably short - ened. Many companies that previously raised substantial funding rounds at high valuations are now approaching the end of their cash runway, despite cash preservation measures, and are in need of additional capital. Those that have not scaled to match their existing valuations face the difficult decision of either continuing to reduce their burn rate at the expense of growth or seek - ing further funding under unfavourable terms. In 2023, the resetting of expectations regarding valuations, combined with investors’ reluctance to reprice their positions and realise markdowns in their fund portfolios, led to a standstill in new deal-making. By contrast, investors in 2024 appeared more willing to reconsider valuations in order to facilitate transactions. The availability of capital from new investors has also signifi - cantly increased compared to 2023, when most focused their resources on supporting existing portfolio companies rather than exploring new opportunities. However, VCs are generally pri - oritising financially sustainable businesses with established products over start-ups with untest - ed go-to-market strategies and ambitious pro - jections. Structured Rounds and Downside Protections Convertible instruments featuring strict control covenants and default terms tied to financial and operational performance, which gained popular - ity among investors as a way to support existing portfolio companies facing challenges in raising new capital in 2023, have now emerged as a favoured option for investors. These instruments typically convert mandatorily upon a qualified equity financing that meets specific gross pro - ceeds and valuation criteria, but are otherwise
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