Capital is the booster of enterprise development. In order to solve the capital needs, although enterprises can precipitate cash flow through operations, their own funds are often a drop in the bucket, and external financing has become one of the important ways for enterprises to obtain funds. According to the different financing tools, the external financing of enterprises can be divided into debt financing and equity financing. Debt financing refers to the funds needed for enterprise development through borrowing from financial institutions, enterprises or individuals. Debt financing does not dilute the company's equity, and creditors do not participate in the company's operation and dividends, but it will increase the company's liabilities, and the principal and interest must be returned after maturity. Compared with debt financing, equity financing introduces new shareholders in the way of capital increase and share expansion to obtain the funds needed for enterprise development, will not increase the company's liabilities, and there is no problem of returning the principal and interest after maturity, so it is welcomed by many enterprises. In private equity financing, the financing party is the enterprise, and the investors are usually private equity funds. However, in order to ensure the safety of the investment, investors often require the founders to join the private equity deal, and some even require the company's management to join the private equity deal. This means that in private equity financing, not only the target company should bear the corresponding financing rights and obligations, but also the founder of the enterprise should bear the specific financing rights and obligations. Most founders are optimistic, and private equity financing transactions often ignore the review and judgment of personal obligations, resulting in individuals and even families bearing great business risks. This paper analyzes the six core obligations that founders must pay attention to in private equity investment agreement from the perspective of founders for reference.

一、Performance bet clause

Performance betting, also known as Value Adjustment Mechanism, is a valuation adjustment agreement reached with the target company or the founder of the target company when the investment institution reaches a private equity investment agreement with the target company, and it is agreed that the target company needs to achieve the agreed business indicators in the future period of time. Otherwise, the gambling subject needs to compensate the investment institution in accordance with the agreement of a contractual arrangement. The main body of the early performance bet is the founder, or the founder of the enterprise and the target company bear joint liability. After the release of the Minutes of the Civil and Commercial Trial Work Conference of the National Court (the "Nine People's Minutes"), the rules and obstacles of the target company as the main body of the counterbet were adjusted. At present, the form of performance counterbet can be "counterbet" between the investor and the target company, "counterbet" between the investor and the shareholder or actual controller of the target company, and "counterbet" between the investor and the shareholder of the target company and the target company. Among them, it is common for investors to bet against shareholders and target companies. In the case of the company's founder participating in the performance bet, the founder needs to bear the adverse consequences of the failure of the bet, the specific liability methods include unlimited joint liability, limited joint liability, and conditional joint liability. At this time, the founder should focus on the following issues: (1) Pay attention to gambling events. Performance betting events should be clear, and reserve enough space for business adjustment to reduce the risk of gambling failure. (2) Pay attention to the way of responsibility. Founders participate in gambling, try to avoid personal gambling or bear unlimited joint and several liability, appropriate isolation of financing risks.

二、Buyback clause

Repurchase Right, also known as Redemption Right, usually refers to the right of investors to request specific repurchase obligors to repurchase all or part of the shares held by investors in the target company in accordance with the agreed repurchase price and repurchase procedure if the target company has agreed repurchase event in private equity financing. The reason why investors set up the repurchase right in private equity investment is mainly based on the cyclical nature of fund operation itself, and ensure that the investment exit channel is smooth when the company has certain material adverse events or the development is not as expected and cannot be withdrawn through listing. The right of repurchase is more of an obligation to the enterprise or founder, but it has its rationality in terms of investment logic, and it is also a special right that investors are often unwilling to give up in equity investment. As far as the buyback subject is concerned, based on the legal system design of the buyback situation in the Company Law and the "Haifu case", which denies the judgment precedent that the company bears the buyback responsibility, in the early practice of corporate equity financing, the founder usually bears the buyback obligation, and the company bears the buyback obligation. The "Nine People's Records" published in 2019 did not blindly deny the agreement of the target company to undertake the buyback obligation, but in the absence of withdrawal of capital, etc., the agreement of the target company to undertake the buyback obligation is valid, but the exercise of the buyback right is based on the company's performance of legal procedures such as capital reduction. At this stage, the main body of buyback can be the founder buyback, the target company buyback, the founder and the target company joint buyback, and the founder and the target company joint buyback is more common. When the founder undertakes the buyback obligation, its specific liability modes include unlimited joint liability, limited joint liability, and conditional joint liability. In the practice of private equity financing at the present stage, most of the early and middle stage financing cases have buyback rights, but there is no uniform standard whether the founder participates in the buyback. If the founder needs to participate in the buyback, it is recommended to focus on the following issues: (1) Pay attention to the buyback event. Repurchase events should be clear, avoid ambiguity, and reduce the risk of repurchase. (2) Pay attention to the buyback price. Try not to compound the repurchase price, and the interest rate is reasonable, so as not to increase the cost of repurchase. (3) Focus on the way of responsibility. Founders participate in buybacks, try to avoid unlimited joint and several liability, and appropriately isolate financing risks.

三、Equity restriction clause

Equity restriction means that without the consent of the investor, the founder of the enterprise shall not transfer or pledge the equity held by him. Investing is investing in people, especially early stage projects. When investors decide to invest in a project, they are often optimistic about the founder of the project. If the founder leaves the company or sells his equity before the investor exits, it is a negative event for the investment, which will often seriously affect investors' confidence in the project. For this reason, in the usual transaction documents, investors usually agree on restrictions on the transfer of the founder's equity, such as before the IPO without the consent of the investor, the founder of the enterprise shall not transfer, pledge and other disposition of the equity held by him. The "founder equity transfer restriction" is a customary deal clause that founders do not have to raise much objection to during financing negotiations. It is suggested that founders pay attention to this clause from the following two aspects: (1) Pay attention to the limitation period. Through negotiation, setting a certain limit period, such as 3-5 years after the settlement, is the best solution. After the expiration of the restriction period, the founders are free to dispose of their equity holdings, which can both respond to the concerns of investors and take into account the interests of the founders. (2) Focus on limits. Try to set a certain degree of exemption, such as 3%-5% of the registered capital subscribed by the founder is not restricted. In this way, under the premise of not affecting the controlling equity of the target company, the founder can freely dispose of the equity within the exemption limit to meet the needs of the founder's life and other flexibility.

四、Vesting clause

Equity cashing, also known as equity maturity, is an indicator that the equity held by the founder of the company is a restricted equity, which can only be unlocked when the cashing condition is achieved and fully belongs to the founder; If the founder leaves the startup team before the vesting conditions are fulfilled, the unvested equity will be withdrawn, and even the vested equity will be withdrawn in exceptional circumstances. The function of the equity cashing clause is mainly to solve the uncertainty of the founder, ensure that the founder can serve the company for a long time, avoid short-term speculation, and strengthen the stability of the entrepreneurial team. In the practice of private equity financing, most of the cash conditions are a certain continuous service period, 4 years is a more common period; 25% can be unlocked for every 1 year of the service term, or a one-time unlock after the 4 year service term expires. The founder shall serve the company during the vesting period. If the founder leaves the company due to negative events (mainly including resignation or dismissal by the company for fault) during the vesting period, the founder's equity will be purchased by the company at a nominal price of 1 yuan or transferred to the investor; If the founder leaves the company due to positive events (such as loss of working ability, etc.) during the vesting period, the founder may retain the unlocked equity, but the ununlocked equity shall be acquired by the Company at a nominal price of 1 yuan or transferred to the investor. Equity cashing clauses appear more often in seed or angel round financing agreements, and the founders of mature companies generally do not accept equity cashing clauses. If the company accepts the equity cashing terms in private equity financing, the founders should focus on the following: (1) Pay attention to the equity cashing conditions. Clarify the conditions for cashing, shorten the cashing period, such as 4 years to cash, and accelerate the pace of cashing. (2) Pay attention to the consequences of the uncashed equity, especially the treatment of the cashed equity, and try to avoid the withdrawal of the cashed equity. Uncashed equity disposal, as far as possible by the company to recover, rather than transfer to investors.

五、No competition clause

Prohibition of competition in the same industry means that the founder of the target company is prohibited from engaging in or for a third party to engage in the same business as the target company or may constitute a competitive relationship within a certain period of time or space. The logic behind the prohibition of competition between founders is that investors hope that the founders of the target company can concentrate on running the target company after investing in the target company, and of course, they do not want the founders of the company to start a new business to engage in competitive business, otherwise they will face great moral hazard. At the same time, competition among founders is also a substantial obstacle for companies to go public. It should be pointed out that the obligation to prohibit peer competition is the statutory obligation of the company's directors, supervisors and senior personnel. China's Company Law stipulates that without the approval of the shareholders' meeting or the shareholders' meeting, the directors, supervisors and senior managers of a company shall not take advantage of their positions to seek business opportunities belonging to the company for themselves or others, and shall not operate or operate for others any business similar to that of the company they work for. The founders of the target companies are basically the executive directors or chairmen of the company, so they themselves bear the legal non-competition obligations. In the current private equity investment agreement, the clause prohibiting the founder from competing with other companies is the standard clause, and the founder does not have to raise too much objection to the clause.

六、The non-compete clause

Competition restriction generally means that in the labor contract or confidentiality agreement, the employer and its senior management personnel, senior technical personnel and other workers who have confidentiality obligations agree that within a certain period after the termination or termination of the labor contract, or during the duration of the labor relationship, It shall not be employed by any other employer that competes with its own unit in producing or operating similar products or engaging in similar business, nor shall it be allowed to set up its own business in producing or operating similar products or engaging in similar business. The non-competition agreement is only for senior management, senior technical personnel and other personnel with confidentiality obligations; The content of competition restriction generally includes the scope, region, time limit, compensation and so on. As a senior management of the company, the founder belongs to the category of personnel with confidentiality obligations, and of course, the competition restriction clause also applies. The logic behind this clause is that after employees with confidentiality obligations leave the company, they can protect the company's trade secrets by restricting the scope of employment of the non-competition restriction obligor, so as to protect the company's interests. In the private equity investment agreement, not only the founder is required to undertake the non-compete obligation, but also other core personnel of the company are required to undertake the non-compete obligation. The period of competition restriction is generally 2 years from the employment period to the date of rescission or termination of the labor contract. In practice, the non-competition obligation of the founder of the target company is mainly agreed separately through the Non-competition Agreement, and the target company shall pay the founder a monthly compensation of not less than 30% of the average monthly salary of the previous 12 months during the period of non-competition. There are some similarities between the non-competition clause and the prohibition clause, both of which restrict the scope of the affairs engaged by the founder of the target company, but one belongs to the scope of labor law and the other belongs to the scope of company law, and the purposes, applicable objects and legal consequences of the two are different. In the current private equity investment agreement, the competition restriction clause is usually the standard provision, and the founder does not have to raise too much objection to the clause, mainly focusing on the scope, period, and amount of compensation.