1988: Back to the human world for a few years

Chapter 268 Catfish
The so-called vesting system is a vesting system originated from the American venture capital circle. Until Yang Mo was reborn, there was no particularly appropriate Chinese translation, so it can only be temporarily called the "equity cashing technique."

This is a type of equity incentive method that is similar to a bet agreement, but is quite different from a bet agreement. Instead, it is somewhat similar to the "annual salary system" of later generations.

The most important point of this vesting system is the "founder share restriction", which often requires each founder to vest 25% of his shares in full one year after the transaction, and the remaining 75% of the shares of each founder will be vested in equal installments within the next three or five years.

What are the benefits of doing this?

for example:

Originally, a startup company had three shareholders. Zhang San invested 3 million yuan, Li Si invested 400 million yuan, and Wang Er invested 300 million yuan. They agreed that "the amount of money invested determines the number of shares you will get."

After the company had been in operation for one year, Li Si and Zhang San had different ideas and wanted to resign. So the problem arose. Li Si invested 1 million yuan and held 300% of the company's shares. What should he do?
Li Si disagreed to withdraw his shares, and his reasons were very good: first, he had spent 30 million yuan to buy these 300% shares, and it would be unreasonable to withdraw them;
Second, neither the relevant laws nor the company's articles of association stipulate that shareholders must withdraw their shares when they resign. If they withdraw, it is illegal.

Zhang San felt very aggrieved, but he could do nothing about it. He really had no reason to take back Li Si's shares!
Of course, there is another possibility: Li Si agrees to withdraw, but the parties are arguing over the conversion price, resulting in no withdrawal in sight. Or after Li Si withdraws from the company's operations, he no longer contributes to the company's value, and his large shareholding ratio is bound to lead to a distorted equity structure.

Equity is the driving force of the company's operation. If there is a problem with the power system, it will seriously affect the company's subsequent development. What should we do?
At this time, can we think about the problem in a different way?

If the shareholding ratio must be fixed at the beginning of the business, can we make some adjustments and exit mechanisms? For example, the founder's 20% equity can be vested immediately when the company is founded, and the remaining 80% can be vested over 4 years;

According to this agreement, if Li Si leaves after one year, he will get 30% x 20% = 6% of the shares, plus the 6% at the time of founding, a total of 12% of the shares. The remaining 18% of the shares will be repurchased by other shareholders at the corresponding original investment price.

Well, this is the vesting system, the most primitive and basic method of use.

But is it possible that the vesting system is so simple that it can take off in America’s venture capital circle?

of course not!
There is a lot of room for designing the vesting clause, as follows:
(1) The vesting cycle.

It can be 3, 4, 5 years, etc. Generally speaking, the more innovative the company is when it is starting up, the longer the trial and error period is, and the longer the vesting period may be agreed to be.

(2) The proportion of vesting.

可以每年平均，也可以逐年递增。比如，第1年10%，第2年20%，第3年30%，第4年40%，逐年递增。360公司按照类似的模式:全职满2年成熟50%，第3年75%，第4年100%。国外常见的模式是:5年成熟，干满1年成熟1/5，剩下的每月成熟1/48。

(3) vesting nodes.

It can be 12 months, 6 months, or 3 months. For example, some clauses will require that "each founder's 25% of the shares will be fully vested one year after the closing", which means that even if the founder leaves after 11 months and 29 days, he or she will not have this equity and must work for 12 months. This is called "cliff" in the Silicon Valley capital circle, which literally means "cliff". However, some companies have a cliff within one year, which is the same as what is stated in the Zhen Investment Terms. After one year, 25% will be paid in one lump sum, and in the next three years, it will be paid every quarter, which means that every quarter, you can get 3/25 of the 1%, so if you leave after working for 4 months, the last 18 months will not be in vain.

(4) Ownership of vesting.

If shareholders cannot predict who will make the greater contribution at the beginning of the business, they can temporarily vest part of the equity, and the unvested part will be discussed and decided by the shareholders' meeting. For example, when a company is established, there are two shareholders, A and B, and the shareholding ratio registered with the Industrial and Commercial Bureau is 50%:50%, but the two parties agree that 25% of their respective equity will be fully vested when the company is established, and the remaining equity will be cashed out at 3% each year in the next three years. The ownership of the equity at the time of cashing can be adjusted by negotiation between A and B based on the contributions of both parties. If one year later, B's contribution or importance is greater than A, A and B can allocate more shares that have not been cashed out to B based on the results of the negotiation.

(5)……

Okay, number five isn’t important anymore.

Just the first four designs are enough...especially the fourth one.

………………

"What!?"

"So... Chief Yang, your suggestion is that we can follow my previous idea and set up four new companies responsible for different businesses. The overall stock price ratio design can also follow my suggestion;"

"But in each new company... we both take out 60% of the shares and make a vesting agreement for five years?"

"This, this, this..."

Suzuki Jiken's tongue was a little tied and cold sweat broke out on his forehead, but his eyes revealed a kind of hesitation mixed with excited madness.

Although the vesting clause itself has a certain gambling nature, and America has gradually made a lot of use of it in the past two years, but...

This young man in front of me is too bold!

Both parties each contribute 60% of the shares to make a vesting agreement?

Isn't he afraid that in five years, more than 76% of the shares of these companies will fall into the hands of Sankyo Co., Ltd., giving them absolute control over the matter?

You know, although America's seed/pre-A preferred stock financing agreements currently have more than 60% of the equity as vesting agreements, they use the basic model of vesting. As long as the founding team does not resign or slack off, they can get back their original shares after a few years, instead of putting up to % of the equity into a gambling-like equity pool!

Seeing this, Yang Mo just smiled, then rummaged through his briefcase for a long time, took out a document that was neither thin nor thick, and motioned Bai Mengmeng to hand it over: "Senior Manager Suzuki, as I said before, although we Chinese people value win-win, we also value fairness in cooperation, so for the healthy development of the project, I have formulated a programmatic vesting agreement... Hehe, the division of spoils must be based on the premise that there are spoils to be divided, don't you agree?"

Suzuki Ciken deeply agreed with Yang Mo's last sentence. If they were not rivals, he almost slammed the table to cheer for the other party... The tail of an ox is better than the head of a chicken. Whether the project can be successful is the key to everything. What's the point of your life-and-death struggle before!

However, when he took a look at the programmatic vesting agreement, his eyes suddenly widened.

Nani?

The assessment points for Hua Xia’s equity incentive penalty are the planting varieties, planting areas, quality control, cost control, production safety, yield rate and production capacity satisfaction rate of authentic medicinal materials?

And the equity incentive penalty assessment points for Sankyo Co., Ltd. are the timely arrival rate of funds, the timely arrival rate of equipment, the technical training compliance rate, sales volume and sales growth curve?
Damn it!
Even if you can see that what Sankyo Co., Ltd. cares most about is the stable supply of authentic medicinal materials in the future, isn't it a bit too bullying for you to vest the ownership agreement like this?
You know, the rest are fine, but that "technical training achievement rate" and "sales growth curve" are really life-threatening.

First, let’s talk about the so-called “technical training achievement rate”.

You must know that according to the verbal agreement reached before, these four new companies are all established in China. Whether it is the cultivation of GAP medicinal materials or the adaptation of future clinical Chinese patent medicines, they are mainly entrusted to Chinese people;

Once they agree to this vesting agreement, with "technical compliance rate" as one of the incentive and penalty assessment points for shares in the equity pool, it means that unless they do not want to compete for the 4% of shares, the technical staff must teach the Chinese side the technical details involved in the main business of the project without reservation.

what?
You said that Sangong Co., Ltd. can send enough technical personnel here, so that they can control all positions and links involving technical secrets, just like the previous cooperation projects with China, and then provide non-confidential technical training to Chinese employees. By adopting such a separate upper and lower technical structure that can ensure the normal operation of the project, can't they bypass the problem?
Haha, you think too much.

You have to know that as long as this vesting agreement is agreed, 60% of the equity of these four units will be in the incentive pool. At the beginning of the project, both parties will only have a total of 40% of the effective equity. In other words, the 60% of the equity is regarded as owned by countless retail shareholders who do not have voting rights, and the company's shareholder decision-making will be transferred to a "quasi-listed company model."

Even though Sankyo Co., Ltd. was the pharmaceutical company with the most evenly distributed initial shareholdings, it only held 19.6% of the effective equity. In other words, at the beginning of the project, Sankyo Co., Ltd., with an effective shareholding ratio of less than 20%, did not even reach the "significant impact line" and did not even have the accounting rights for major projects.
But correspondingly, the Chinese side can have an initial effective equity of 20.4%, just reaching the "significant impact line".

This is very fatal. In this "quasi-listed company model", the effective equity ratio of both parties does not exceed 34%, so the management decision-making power of general matters will naturally be handed over to the shareholder with the largest share...that is, the Chinese side.

Unfortunately, Sankyo Co., Ltd.'s initial effective equity was less than 20%, and it had no decision-making power over the introduction of equipment, the selection of personnel for core positions, and the scope of responsibilities.

So the question is, although the Chinese side will definitely let the island country's technical personnel take up positions such as CTO due to objective reasons, they will definitely arrange Chinese people to middle-level core positions such as technical supervisors and technical managers... If within the scope of the CTO's responsibilities, in the name of production safety, the CTO is required to pass on those confidential technologies to the technical manager as a risk plan, would you agree or not?

promise?

Well, as the saying goes, "one book for external transmission, one page for internal transmission"; even if the vesting period is six months, in the first six months, Sankyo Co., Ltd. spent countless efforts and trial and error costs to research equipment installation technology, modulation technology, maintenance technology, biofertilizer production, light control parameters, drug extraction, some drug adaptation technology, etc., all of which must be learned. Don't agree?
Let those technicians be mute?

Haha, this vesting agreement is essentially a game process. The incentives of both parties in the agreement can be redundant. What matters is the speed of the hands. If you don’t take the shares, then they belong to me. When the enemy retreats and I advance, giving up 4% of the shares means giving Huaxia an additional 8% share advantage.
You have to know that the basis of the AB share model framework is related cross-holdings. If your four upper-level units lose 6% of the share advantage, the impact will be far from simple. Where is the power enjoyed by different share ratios? If Sankyo Co., Ltd. loses even 0.1% of cross-shares in the lower-level units, it is very likely that it will not even have the right to speak.

If you are deducted some equity in other aspects, and want to control these GAP planting bases...

Dreaming!
The same goes for the “sales growth curve”.

Different from the established sales volume agreements required in traditional Sino-Japanese joint venture projects, using the sales growth curve as a vesting equity incentive penalty assessment point is more like the assessment model of financial statements for listed companies, which only allows progress but not retreat.

Anyone who knows about this knows that this is very serious. It is clearly forcing Sankyo Co., Ltd. to promote the series of self-branded Chinese medicine products launched by Yang Mo through the pharmaceutical factory as key projects... Even if the initial basic sales agreement amount is lower, after five years of upward growth, it is a product that cannot be underestimated and has already become established.

………………

Facing this young man's naked and undisguised greed like a hungry wolf, Suzuki Jiken felt his scalp tingling.

But if you say he's not moved, that would be a lie.

Without it.

Although Yang Mo's outline vesting agreement made excessive demands on the island country's technology and market, the amount of equity incentives given was also unusually generous.

Taking the sales growth curve as an example, each flagship product has a 6-month stage. If the sales in each stage increase by 30% based on the agreed sales, 0.2% of the shares can be taken away. At the end of the vesting agreement, if the compound growth rate of each stage reaches 50%, the Chinese side will take out 1% of the shares from the equity pool as a reward... and this reward has priority.

Don’t think this is a small amount. The five-year agreement only has ten stages. If you get the full amount, you will only get 2% of the shares, and with the bonus, it will only be 3%.

But you have to understand, it’s a single item!
Even if we don't count the new flagship products to be launched in the future, and only take the three products that have been basically finalized in the initial stage, represented by the "Lotus Jade Cream Chinese Medicine Mask", that's still a 9% stake!

Moreover, any discerning person can see that Yang Mo's ultimate goal is to gain a share of the clinical drug market. If you say that he will not launch his own brand of clinical Chinese medicine in the future, Suzuki Jiken will never believe it!

Even if we use the most conservative estimate of 9%+2X, that would be at least a 15% stake!

No one understands the weight of this number better than Suzuki Jiken.

Sighing silently, the old man looked at Yang Mo in front of him with mixed feelings.

Exchange resources for technology and space for market?
It seems that China has finally found a path that seems feasible!

but……

Does China really have the ability to seize this opportunity?
Suzuki Jiken closed his eyes and thought for a while.

Technology is time-sensitive, and every pharmaceutical company in the island countries has invested a lot of research and development funds and manpower in this area. Needless to say, their strength in technology reserves and pre-research is self-evident. Therefore, even if all the technology of this generation is passed on, they don't have to worry about China posing much of a threat to them... After all, China's industrial and technical foundations for the modernization and adaptation of traditional Chinese medicine are so weak that they feel sad.

Investing huge amounts of energy and resources to help them promote several independent brands in the domestic and international markets, although there is a small loss from a purely commercial perspective, it is very cost-effective if those GAP medicinal material bases can be firmly controlled in hand... After all, this matter is related to the promotion of the merger with Daiichi Pharmaceutical Co., Ltd., and the strategic value is immeasurable.

The most important thing is, although he didn't know Hua Xia very well, he was well aware of the jokes made by Chinese companies and the lazy behavior of some employees of Hua Xia's state-owned enterprises during the eleven years of reform and opening up... It can be said that there are few foreign companies that have done joint venture projects with Hua Xia over the years that have not complained about it.

As an old fox who has been in the battlefield for most of his life, Suzuki Jiken understands the truth that "even if the natives are equipped with the most advanced weapons, they cannot defeat a well-trained army."

After hurriedly going over the current situation in China sorted out by his subordinates in his mind, Suzuki Jiken looked at the vesting ownership agreement again, his eyes full of smiles.

Haha, fair competition for dominance?
Is it a win-win situation?
The idea is good, but you also have to have the ability to get those incentive shares!

Suzuki Jiken had already made up his mind, and as if he saw the perfect 67% controlling stake right in front of him, he showed an embarrassment on his face: "Chief Yang, your proposal... is really a bit embarrassing for me, and it is beyond my authority!"

After thinking for a while, the old fox gritted his teeth and said, "But I admire Chief Yang's courage to try to break the old rules. I am also willing to jointly explore a truly win-win cooperation model for the sake of friendship between China and Japan. "

"How about this, Chief Yang, please wait for me for three days... I will send a telegram to the company today to request a board of directors conference call. After the board of directors makes a decision, we will sit down and discuss all the details including vesting!"

Yang Mo glanced at Suzuki Jiken, who looked embarrassed and entangled, and then looked at the vesting ownership agreement that he had always been intentionally or unintentionally tied to, and raised the corner of his mouth...

You know very well that we Chinese people care about our reputation and like to talk about social etiquette!
What's going on? You're showing an attitude of not giving up even if it means death. Are you trying to gain more advantages in the subsequent detailed negotiations?

Ha ha……

Thinking of this, Yang Mo showed a nonchalant smile on his face: "Since Executive Director Suzuki does not have this authority, I will not make it difficult for you...Okay, Executive Director Suzuki needs to apply to your company's board of directors, so let's apply first."

Suzuki Jiken sensed something was wrong and was about to ask what was going on.

Bai Mengmeng, the clerk, raised his wrist to look at his watch, then stood up a little impolitely, walked to Yang Mo and whispered something in his ear.

Yang Mo was surprised when he heard this. He quickly reached out to check his watch, then immediately put on an embarrassed smile: "Senior Managing Director Suzuki, it's getting late. How about...let's end the meeting here?"

Although he spoke in a consulting tone, his hands were not idle at all. In less than ten seconds, he put the documents in his hands into his briefcase at a slightly hurried speed. After standing up and yawning, he left Bao Shuxian and another team leader there to take care of the aftermath, and quickly left the meeting room with Miss Mu and Bai Mengmeng.

Seeing Yang Mo and his group's rude behavior, Zhu Tianrang and others looked unhappy.

Suzuki Jiken frowned and pondered for a long time, then calmly asked the translator Shi who was sitting next to him: "Shi, did you hear what the little girl said to Section Chief Yang just now?"

After hearing this, Shi, the translator, who was completely stunned by today's negotiations, came to his senses and thought for a while before whispering, "I can't hear it clearly, but it seems to be saying... the time agreed with the Egyptian exchange group has come?"

Egypt?

Suzuki Jiken's brows were furrowed, and he was deeply confused. Thinking of Yang Mo and the others' somewhat contemptuous attitude over the past few days, he had a bad feeling in his heart...

………………

Only when they were far away from the conference room did Yang Mo and his group slow down their pace.

After giving a few instructions to Mu Liya, the young lady rolled her eyes slightly, then went to another meeting room with a sullen look on her face, while Yang Mo lazily returned to his office.

A certain poor clerk who had just acted as an actor looked at his master who was slacking off again with resentment, and could only follow Miss Mu...

Seeing the two people leave, Yang Mo turned his head to look at the conference room in the distance and sighed softly.

Catfish?
Although I know that some changes are necessary and some things may not be acceptable to people today, I still hope that the Chinese people can fight for their dignity by measuring the incentives as much as possible and creating a relatively fair environment.

At least...don't eat them all!
(End of this chapter)