Founders who focus on headline valuation and miss the terms attached to the shares they are issuing routinely receive less than expected on exit, or find that investor consent requirements prevent them from running the business as they intend. The economic terms — liquidation preference, anti-dilution, pro-rata — determine how proceeds are distributed. The governance terms — board composition, reserved matters, information rights — determine who controls the company in the interim.

The Three Main Investment Instruments

SAFE (Simple Agreement for Future Equity)

A SAFE is an agreement by which an investor gives you money now in exchange for the right to receive shares at a future equity round, at terms reflecting the SAFE's valuation cap and/or discount. No interest accrues and there is no maturity date — the SAFE converts automatically when a priced equity round occurs.

Their main variables are: the valuation cap (the maximum company valuation at which the SAFE converts — the lower the cap, the more dilutive the SAFE); the discount (a percentage reduction to the next round's price per share); and whether the SAFE is pre-money or post-money (a material distinction affecting dilution). Get advice on SAFE structure before signing.

Convertible Note

A convertible note is a debt instrument that converts into equity at a future financing round. Unlike a SAFE, it accrues interest (typically 5–8% per annum) and has a maturity date. If the company fails to raise another round before maturity, the noteholder can demand repayment in cash.

Priced Equity Round

A priced round involves issuing shares at an agreed price per share, implying an agreed pre-money valuation. It requires a term sheet, subscription agreement, amended Articles of Association, shareholders' agreement, and often board composition changes.

Preference Shares and Economic Terms

Institutional investors almost never buy ordinary shares. They buy preference shares that give them priority rights on dividends and on exit. The most important term is the liquidation preference: on a sale or winding up, preference shareholders receive their invested capital back (or a multiple of it) before ordinary shareholders receive anything.

A 1x non-participating liquidation preference is reasonably founder-friendly. A 2x participating liquidation preference is very investor-friendly: the investor gets twice their money back first, then participates in remaining proceeds alongside ordinary shareholders. The difference is significant in an acquisition scenario.

Governance Terms: Where Control Actually Lives

Governance terms are where founders most commonly give away more than they intend. Watch for:

• Board seats: The more board seats investors control, the more influence they have over strategic decisions.
• Reserved matters and veto rights: A list of decisions requiring investor approval. The breadth of this list is highly negotiable.
• Anti-dilution: Broad-based weighted average anti-dilution is standard and relatively founder-friendly. Full ratchet anti-dilution should be resisted.

Government Grants: Dilution-Free Capital

Before taking investor capital, explore non-dilutive government funding:

• Technology Voucher Programme (TVP): Up to HK$600,000 per company (75% government, 25% company). Funding caps are subject to change — verify current limits with the relevant bureau.
• Cyberport Creative Micro Fund: Up to HK$100,000 for early-stage entrepreneurs incubating at Cyberport.
• HKSTP Incubation and Acceleration Programmes: Funding, workspace, and mentoring for deep tech and hardware companies.
• BUD Fund: Subsidies for expanding into mainland China or ASEAN markets, up to HK$7 million per enterprise (subject to periodic review).