Operator Intelligence from Evolette Locin: Venture Risk Architecture and B2B Deal Structuring, Singapore
1. The Operational Flaw: Paying Operators in Shares Because Nothing Else Comes to Mind
A founder opens a second venue, or hands a site to a general manager who will run it day to day, and wants that person to share in the upside. The reflex answer is equity. Issue a few percent, sign a shareholders’ agreement, and everyone is aligned. It feels generous, it costs no cash, and it is the language every startup article uses.
For an operating business, it is often the wrong instrument. Shares give the holder rights over the whole company, not just the venue they run: votes, information, a claim on any future sale, and a seat at the table in every decision that needs shareholder approval. They are hard to take back. If the operator leaves after eighteen months, the founder is left negotiating a buy-back, often at a price nobody agreed in advance, with a former colleague who has no reason to be helpful.
The second flaw is that equity rewards the wrong thing. A general manager running one court venue or one restaurant counter controls that unit’s revenue and costs. They do not control the group’s head office overhead, its financing, or what a buyer might pay for the brand in five years. Paying them in a slice of the whole company ties their reward to outcomes they cannot influence and leaves the outcome they can influence, unit profit, only loosely rewarded.
2. The Live Proof-of-Concept: Contractual Participation Inside Our Own Portfolio
Our operating businesses, Miyu Omakase, Winchester Tennis Arena, TAG International Tennis Academy and PickleChoo, are site-based. Each venue or counter has its own revenue line, its own cost base and its own people. When we have wanted to reward the people who build a particular unit, we have used a contractual profit participation right in place of issuing shares.
We do not publish the terms of our own agreements. The pattern is what matters. The right is a contract between the company and the individual. It pays a defined share of a defined profit figure for a defined unit, on a fixed schedule. It cannot be sold or assigned. It ends when the holder leaves. The holder has no vote and no claim on the company’s other venues or on a sale. The company’s register of members does not change, so a later investor, lender or landlord sees a clean cap table. The same thinking sits behind our note on vesting and leaver terms, which is what you need if you do issue shares, and our note on joint venture deadlock and exit, which is what you need when the partner is a company rather than a person.
3. The Execution Architecture: Seven Terms That Make a Participation Right Work
Step 1: Define the unit, not the company. Name the venue, counter, programme or contract whose profit is being shared. If the business has several sites, the agreement should say which revenue and which costs belong to this unit. Shared costs such as rent on a common space, a booking platform, or a central kitchen need an allocation rule written down now, because the first dispute will be about whether a cost was fairly charged.
Step 2: Define profit as a formula, not a word. "Net profit" means different things to an accountant, a tax adviser and an operator. Write the formula: unit revenue, less named categories of direct cost, less an agreed management charge, before or after depreciation of the unit’s fit-out. Decide whether the founder’s own salary or management fee sits above the line. Attach a worked example from last year’s numbers as a schedule. If both sides can reproduce the figure from the management accounts, there is little left to argue about.
Step 3: Decide whether the holder pays for the right. A right granted for nothing is a bonus with a different name. A right the holder buys, even at a modest price, changes the conversation: the holder has put money at risk and the company has a clear basis for the payout. One practical approach is to price the right off a deliberately discounted valuation of the unit’s expected cash flows, so the entry price is fair to someone joining early. Whatever method you use, document it, because it is the evidence that the arrangement was commercial.
Step 4: Fix the payment mechanics. State the start date, the payment frequency, the accounts the calculation is based on, and the date by which the statement and payment are due. Add a short right for the holder to see the calculation and query it within a set period, and a simple route for resolving a query, such as review by the company’s external accountant. Monthly or quarterly payments based on management accounts, trued up against the annual figures, keep the holder engaged without creating a second audit.
Step 5: Make it personal and non-transferable. The right should belong to the named individual only. It should not be assignable, cannot be used as security, and does not pass to anyone else. This is what keeps the cap table clean and stops the right from turning up in a stranger’s hands after a personal dispute.
Step 6: Write the exit on day one. Decide what happens if the holder resigns, is dismissed, retires or falls ill, and if the unit closes, is sold or is relocated. The simplest version is that the right is extinguished on the holder ceasing to work in the business, with any entitlement accrued up to that date paid out on the normal schedule. If the holder paid for the right, decide in advance whether any part of the price is refunded and on what formula. Where several people hold rights in the same unit, say whether the arrangement survives if one of them leaves.
Step 7: Check tax and payroll treatment before signing. If the holder is an employee, payments under the right are likely to be treated as part of their employment income, and CPF contribution rules on additional wages may apply. If the holder is not an employee, the treatment is different again. Confirm both with your accountant against current IRAS and CPF Board guidance, so that the payments are processed correctly from the first month rather than corrected later.
Take the agreed commercial terms to a Singapore lawyer for drafting. A participation right is a short document when the commercial decisions are made first, and a long, contested one when they are not.
4. The Asymmetric Advantage: Why Hour-Billing Advisers Cannot Replicate This
An agency or an academic consultant will usually recommend an employee share option scheme, because it is the template they know. A lawyer will draft whichever instrument you ask for, accurately, and will not tell you whether a venue manager should be paid on unit profit or company value. Neither has had to sit across from a departing operator who holds shares in the whole group.
An operator knows which costs a manager can influence and which they cannot, how a shared kitchen or court booking system should be charged out, and what a fair payout looks like in a month when the unit traded well but the group did not. That is the work that makes a profit formula hold up when real numbers arrive. We structure the commercial position. A qualified Singapore lawyer drafts the agreement and an accountant confirms the tax treatment.
5. The WhatsApp Conversion Bridge: Request a Private Portfolio Audit
If you are about to give equity to a manager, a partner or a key coach, or you already have and are not sure what happens when they leave, start with the numbers. We review the unit economics, recommend whether shares, a participation right or a straightforward bonus fits the role, and set out the profit formula and exit terms to take to your lawyer.
Request a Private Portfolio Audit via WhatsApp.
This article is general commercial commentary, not legal, tax or financial advice. Have any profit participation, incentive or employment arrangement reviewed by a qualified Singapore lawyer and accountant before you sign or act on it.
