Zest Your Equity | 13-March-2024

This week’s agenda 📜

• What’s new?

• Startup fundraising

• M&A activity

• What we’re reading

• Our blog

Let’s dive in 👇

What’s New? 🕙

Investors and founders both come across many unique terms used in transaction documentation that can have significant impacts on their economic opportunities.

Liquidation preferences, for one, is a protective provision used in transaction documentation that determines which parties get paid first in the event of a liquidation event, and how much everyone walks away with.

When there is a significant exit event, investors will earn their pro-rata share of the sale proceeds based on their percentage ownership in the company. However, when the exit event is less than what is hoped for, liquidation preferences determine who walks away with what amount.

There are three parts of this protective provision:

Seniority

Seniority defines the order in which investors get paid back when there is a liquidation event. Although there are several ways this is structured, the most common “preference stack” is pari passu, meaning that all investors have the same level of seniority status and receive their proceeds simultaneously.

Multiple

The multiple represents how much an investor receives based on a multiple of their existing investment in the company. In early-stage investing, a 1x multiple is most common in transactions. This means if an investor makes a $1M investment into a company and their liquidation preference has a 1x multiple, the investor is entitled to $1M of the proceeds of the exit event. For later-stage investing, you may see a 2x or 3x multiple on certain investments.

Participation

This clause determines if an investor is permitted to “double dip” on their distribution returns. If a liquidation preference is “non-participating,” the investor must choose between receiving their investment multiple OR converting to common shares and receiving their pro-rata return based on their percentage ownership. If a liquidation preference is “participating,” the investor is entitled to both returns. It is standard for a liquidation preference to be “non-participating” and less common to be “participating.” At the end of the day, the investor will choose the option that provides the higher return, if they have a “participating” liquidation preference.

If you found this helpful, let us know! We may go more in-depth on this topic in a future article ✍️

Who’s Raising? 💰

• 🇸🇦Saudi Arabia-based SaaS provider Salla has raised a $130 million pre-IPO investment round, led by Investcorp, along with Sanabil Investment and STV.

• 🇸🇦The Saudi-based fintech company Moyasar has completed its Seed investment round, which included Derayah Ventures Fund and was worth SAR 78.75 million ($21 million).

• 🇸🇦Saudi Arabia-based bidding platform Mazadak has secured $10 million in funding, led by Revival Lab and a group of family offices.

• 🇸🇦Saudi Arabia-based proptech Buildnow has raised $9.4 million in Seed funding. The round was co-led by Raed Ventures and Khwarizmi Ventures.

• 🇸🇦Saudi Arabia-based construction tech (contech) BRKZ has secured an $8 million Series A, co-led by 9900 and BECO Capital, with participation from Aramco’s Wa’ed Ventures, Knollwood Investment Advisory, RZM Investment, and MISY Ventures.

• 🇸🇦Saudi Arabian-based Lawazem has announced the successful closure of a Pre-Series A funding round worth 30 million Saudi riyals ($8 million) during its participation in the LEAP24 conference

• 🇦🇪UAE-based HRtech RemotePass has raised $5.5 million in a Series A funding round, led by 212 VC. 

• 🇪🇬Egypt-based adtech dKilo has secured $3.2 million in seed funding, mix of equity and financing from Upturn Ventures. 

• 🇦🇪UAE-based cleantech Zeroe has raised a Seed investment boost provided by the VOYAGERS ClimateTech Fund, taking the total raise to $2.3 million. 

• 🇸🇦Saudi Arabia-based B2B fintech Rakeez Capital has closed a Seed investment round of $2 million, led by Core Vision Investments.

• 🇸🇦Saudi Arabia-based fintech Rabeh Financial has closed a $800,000 Seed investment round during LEAP 2024, in collaboration with Mjalis Investment Company and several angel investors, valued at $8 million.

M&A Activity 💼

• Saudi Arabia-based equity management platform RasMal has acquired UAE’s Pentugram to expand its offering into private capital investment management solutions, for an undisclosed value. Source.

Our Blog ✍️

If you’ve ever thought about raising venture capital for your startup, you’re going to need to understand the concept of “reserved matters.”

What are reserved matters?

Reserved matters are governance clauses included in relevant shareholder documentation that determine which corporate decisions need to be approved by specific stakeholders.

The purpose? 

Reserved matters are meant to encourage responsible governance practices while enabling corporate leaders to be efficient decision-makers.

It’s crucial to understand how reserved matters work, examples of common reserved matters, and how to balance these governance considerations with effective decision-making.

In our latest blog post, we discuss these topics and more 👆

Want to learn more? Schedule a time with our team below!