As of October 19, 2017, the latest IPO review status from the CSRC shows that Three Squirrels is under suspension of review, meaning its path to listing has temporarily come to a halt. The suspension reason for Three Squirrels falls under circumstance four, which is that the issuer voluntarily requested suspension of review, or other reasons prevent the review from proceeding normally. Notably, Three Squirrels had signed agreements with investors regarding the "listing timeline." If the IPO remains suspended after two months, the agreements will automatically take effect, granting investors special rights such as repurchase rights, co-sale rights, liquidation preferences, anti-dilution rights, and veto rights over major matters. Warning Signals from the Mold Exceedance Incident At a critical moment for Three Squirrels' IPO, bad news arrived. In mid-August this year, Three Squirrels was thrust into the spotlight due to food safety issues. On August 15, the China Food and Drug Administration (CFDA) issued a notice about three batches of substandard food, revealing that pistachios produced by Three Squirrels Co., Ltd. on January 22, 2017, sold via Tmall Supermarket, had a mold count of 70 CFU/g, which is 1.8 times higher than the national standard (not exceeding 25 CFU/g). In the early hours of August 16, Three Squirrels responded urgently via its official Weibo, stating that under the guidance of local food and drug regulatory authorities, it proactively recalled the batch in question from sale and inventory. It also conducted an investigation, suggesting the issue may have arisen from improper storage and transportation conditions after leaving the factory, leading to mold growth and the substandard sample in the distribution chain. The company also implemented corrective measures. In fact, over the years, consumers have continuously complained about the company's product quality and alleged false advertising through various channels. In the case of Tang Wei suing Three Squirrels over product liability, Tang Wei submitted screenshots of product reviews as evidence, showing multiple consumers commenting on mold, insect remains in drinks, damaged packaging, excessive dust, and doubts about the quality of the Longjing tea product. Three Squirrels only stated in court that the evidence was irrelevant to the case but did not deny it. A timely response may help Three Squirrels avoid a wave of public opinion, but for a company planning an IPO, this issue could become a major obstacle on its listing path. Is this factor the reason for the current IPO suspension? Betting on Listing Timeline: Three Squirrels' IPO Is Urgent! For Three Squirrels, the management's bet with investors on the listing timeline is one of the key reasons for its "urgency" to go public. Overseas venture capitalists are not philanthropists; they are more like gamblers seeking high returns. Three Squirrels may appear glamorous, but in reality, it may be bound by betting agreements with overseas VCs. According to Three Squirrels' prospectus, when introducing three overseas VCs, the company signed investment agreements containing special rights for investors, including co-sale rights, repurchase rights, co-sale rights, liquidation preferences, anti-dilution rights, and veto rights over major matters. On December 17, 2015, the company signed agreements with the three VCs to conditionally terminate these special rights arrangements. If the issuer submits listing application materials within the aforementioned period and the listing is approved, the investors' rights will be permanently terminated. If the listing is not approved, unless the parties agree to resubmit listing application materials, the investors will automatically restore any preferential rights under the investment documents. A senior investment banker noted that regulators continue to maintain strict review policies regarding betting agreements in IPOs. The CSRC prohibits betting agreements based on: first, they do not conform to the legislative spirit and regulations of the Company Law, such as same shares, same rights, including preferential repayment rights and board veto rights; second, executing such agreements may cause instability in the equity and operations of the prospective listed company, or even lead to disputes, which does not meet the issuance conditions in the IPO Management Measures. For companies like Three Squirrels with such betting agreements, failure to list could impose unimaginable costs on the company and its actual controllers, and in severe cases, could lead to a break in the capital chain and bankruptcy. To avoid this fate, companies with betting agreements often go to great lengths, even resorting to financial fraud and packaging, to push through the IPO. Three Squirrels, a product of capital plus the internet, has developed at breakneck speed with financial support, but venture capital institutions ultimately seek high returns. Three Squirrels may appear glamorous, but in reality, it may be bound by betting agreements with overseas VCs. Whether this IPO suspension will adversely affect Three Squirrels' future operations remains to be seen. Source: FMCG Elite Club 2017 (3rd) FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to explore new chapters of cross-industry integration! Click the links below to review the highlights of the first and second FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-