To Japanese Investors – What to Know About Silicon Valley VC Financing(日本の投資家へ-シリコンバレーのVCファイナンスについて知っておくべきこと)



Hi.  This is John Sasaki again.

Here’s another photo of Ichigo.  This is her Halloween costume.  Can you guess what she is for Halloween?  Answer below.






Last time I posted an article about Silicon Valley VC financing terms.

Anatomy of a Silicon Valley VC Financing

This time, I will focus on specific issues of concern for Japanese investors.  I’ve represented numerous Japanese investors in Silicon Valley VC financings, sometimes as the lead investor but also as a minority investor.  So, let me highlight 5 points that Japanese investors should consider when participating in Silicon Valley VC financings, including the differences between the perspectives of the lead investor vs. a minority investor.

1. Articles vs. Contract

As mentioned in my previous post, VC terms can be broadly divided into two categories: (i) terms in the certificate of incorporation, such as the dividend and liquidation preferences, automatic conversion provisions, anti-dilution protection and protective voting provisions; and (ii) contractual terms, which include information rights, preemptive rights, rights of first refusal, co-sale rights and drag-along rights.

For the most part, the terms in the certificate of incorporation apply equally to all shares in a particular class or series on a pro rata basis, while contractual terms are more flexible, and thus can more easily treat investors differently.

So, it is less likely for the terms in the certificate of incorporation to treat the lead investor differently than the other investors.  What does this mean?  If you are a minority investor, focus your energy on the contractual terms.

2. Rounds and Voting Thresholds

In Japan, the common practice is for the company to negotiate a separate investment contract with each investor.  In contrast, U.S. start-ups do financings in “rounds”.  In a financing “round”, the company negotiates the financing terms with a lead investor, and all other investors become parties to the same documents.

Why do U.S. start-ups do financings in rounds?  One reason is that amendments or waivers to the investment contracts can then be achieved by majority vote (or some other threshold).  Contrast this to the situation in Japan, where an amendment to all of the investment contracts requires each investor to consent to an amendment to its investment contract.

So, understanding voting thresholds in Silicon Valley VC financings is very important.  A majority is probably the most common threshold, but two-thirds or higher is also possible.  A lead investor may wish to set the threshold so it can by itself effect any amendment or waiver.  The other investors will want to ensure the opposite.  And a minority investor with enough power may wish to set the threshold so that it can by itself veto any proposed amendment or waiver.  If the threshold is achieved, you can become subject to amendments or have your rights waived, all without your consent.

This is also one point that minority investors should check in the certificate of incorporation.  There are a number of voting thresholds in the certificate of incorporation, including those to amend the articles themselves, as well as to take the actions in the other protective voting provisions.  Other voting thresholds may be included in the definition of “deemed liquidation” or in the anti-dilution provisions.  You also need to understand whether the voting thresholds apply to a class vs. a series.

 3. Major Investors

Some contractual rights, such as information rights and preemptive rights, may apply only to stockholders with a certain number of shares, or a certain percentage of the shares.  These stockholders are often called “Major Investors”.

From an investor’s standpoint, this is two-step process.  First, you should confirm which rights are available only to Major Investors.  Then, you need to confirm whether you fall within the definition of Major Investors.

As mentioned above, there are two basic ways to define Major Investors.  One is through a minimum number of shares.  The other is by a minimum percentage of shares.  If possible, you should negotiate for a minimum number of shares, because your percentage of shares can change without any action by you.

For example, let’s suppose that information rights are available only to Major Investors, and the definition of Major Investors is based on a minimum percentage of shares, such as 10%.  And you are a Major Investor, but do not hold a majority of the preferred stock.  Let’s also suppose that the voting threshold above is a majority of the preferred stock.  The company now wants to conduct a new financing, but doesn’t want to grant preemptive rights to existing investors.  If investors holding a majority of the preferred stock consent to waive their preemptive rights, you would not be able to exercise your preemptive rights.  And if the result of the financing is dilution of your percentage below 10%, you would lose your information rights.

 4. Share Transfer Restrictions

There are two main share transfer restrictions included in Silicon Valley VC financings: (i) rights of first refusal; and (ii) co-sale rights.  Generally, these restrictions apply to the founders, and are for the benefit of the investors.  But, sometimes these rights apply to all stockholders.  In other words, in those cases, your proposed sale of shares would be subject to rights of first refusal and co-sale rights of the other investors (and sometimes the founders).  This would severely restrict your ability to sell your shares, and it is not typical.

So make sure to check this point.

Another share restriction provision is a drag-along right.  Make sure to confirm whether or not there is a contractual drag-along right.  If so, you may be forced to sell your shares, even if you don’t want to sell your shares.  Also, make sure that the drag-along right applies only to a sale of the company.  Sometimes this provision is used to require stockholders to vote in favor of other transactions, such as a financing.  This is rare, but make sure to check.

5. Registration Rights

What about registration rights?  You may recall that these rights allow investors to register their shares so that they can be sold in the public market.

The reality is that you don’t really need registration rights if you hold less than 10% of the shares of the company, and you don’t have the authority to appoint a director or officer.  This describes most Japanese investors.  In that case, you don’t really need to worry about registration rights.

Did you know that you can sell your shares in the public market without registration rights?  One of the exceptions from registration is called Rule 144.  Perhaps you have heard of it.  Under this exception, if you have held the shares for a certain period of time (in general, six months), you can sell your shares in the public market without registering the shares.  How?  This will be covered in a future article.

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Obviously, these aren’t the only issues you should consider in Silicon Valley VC financings.  But they are probably the most important, especially if you are a minority investor.

Answer: Ichigo is a hot dog!  With mustard and relish.

If you have any questions, please feel free to contact me at













 1. 定款 vs. 契約



したがって、定款の条項ではリード投資家を他の投資家と異なる形で扱いにくくなります。これは何を意味するでしょう? あなたが少数投資家なら、契約条項にエネルギーを集中させましょう。

 2. ラウンド及び賛成(決議)要件





 3. 要投資家





 4. 株式譲渡の制限




 5. 登録請求権



登録請求権がなくても公開市場で株式を売却できることは知っていましたか? 登録の例外要件のひとつに、ルール144というものがあります。聞いたことがあるかも知れません。この例外要件は、一定期間(一般的には6ヶ月間)株式を保有していた場合、登録しなくても公開市場で株式を売却できるというものです。なぜか?それは今後の記事で。

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【参考和文作成:弁護士 林 賢治】


AZX Professionals Group
AZX Professionals Group
弁護士 パートナー
横田 隼
Yokota, Hayato
AZX Professionals Group
弁護士 パートナー
石田 学
Ishida, Gaku