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Is a ‘No Inheritance of Equity’ Clause Really Valid? The Answer May Surprise You
When many entrepreneurs read the previous article explaining that the articles of association may provide that “equity shall not be inherited,” their first reaction is: if I simply write a clause in the articles of association stating “equity shall not be inherited,” does that settle the matter once and for all?The answer is: not so…
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Liquidation Preference for Software Companies: What’s Left at Liquidation Besides Code and a Server?
Case: At the end of 2024, a Beijing-based enterprise management software company that had been in business for seven years reached its end. After a roller-coaster ride—from its peak of 300 employees and annual revenue of RMB 80 million to a final remnant of just 43 employees and 18 consecutive months of losses—the founder decided…
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Expanded Non-Compete in Software: What Can You Do When a Departing Programmer Contributes Code to a Competitor on GitHub?
Case Introduction: At the end of 2024, an AI infrastructure startup in Hangzhou encountered a problem that kept its founder awake at night. After Mr. Wang, the company’s former chief architect, left and joined a competitor, the founder was shocked to discover while browsing GitHub three months later that Mr. Wang was frequently submitting code…
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Data Asset Ownership: Who Owns User Data — the Founder, the Company, or the Investor?
— A Comprehensive Analysis of Data Asset Ownership and Compliance ClausesIn the autumn of 2023, a Beijing-based MarTech (marketing technology) company that had been operating for five years arrived at a crossroads. The company had accumulated behavioral data from over 8 million end users. After cleansing, labeling, and modeling, this data became the company’s single…
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Investor Special Rights (Software Edition): 5 Special Rights Investors Must Secure When Investing in Software Companies
Preface: Research has found that, of 17 software companies invested in over the past five years, 4 have essentially “died,” and another 3 have seen their product direction become unrecognizable compared with the business plan at the time of investment. In-depth study revealed a common trait — the investment agreements of these companies almost all…
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Technical Debt Disclosure: When Due Diligence Reveals Your ‘Perfect System’ Is Actually Legacy Code
In early 2024, an AI company in Shenzhen that had secured RMB 50 million in Series B funding from a leading institution triggered quite a stir. The founder repeatedly emphasized during the roadshow that its “independently developed underlying AI engine” had been running stably for over 18 months and served dozens of paying customers. Riding…
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Key Personnel Lock-Up Clauses: The CTO Leaves and Valuation Halves — How to Bind Core Team Members
In 2023, a Hangzhou startup completed its Series A financing at a valuation of RMB 300 million. At the same time, an additional clause was attached to the investment agreement: the founder and CTO had to continue serving full-time for at least four years after the financing. The investor viewed this as standard practice, while…
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ESOP Design for Software Companies: Why Give Programmers 10% Equity? Talent Is Productivity
Case: In 2024, the founder of a Series A SaaS company valued at RMB 500 million hesitated at the negotiating table — the investors demanded the team ESOP not exceed 8% of total equity, while the CTO insisted on reserving 12%. “Programmers aren’t worth that much; 6% is enough,” the investor said, throwing up his…
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Source Code Escrow: What If Investors Fear Being Held Hostage When the Founder Controls All the Code?
In-Depth Practice of Source Code Co-Management and Escrow Clauses In the investment and financing practice of the software industry, we repeatedly witness an unsettling reality: the core code of the vast majority of startups is actually controlled by only one or two people. A CTA (Chief Technical Architect) leaving, co-founders falling out, or a founder…
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IP Contribution in the Software Industry: A Founder Contributes Code at a 10 Million Valuation? Investors Go Silent After Due Diligence
An In-Depth Analysis of IP Contribution and Valuation Clauses in the Software Industry Editor’s Note: In the software startup space, “technology-based contribution” (contributing technology as capital) has become one of the most common forms of capital contribution. A programmer brings code they developed to an investor, and the two hit it off immediately…
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