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VC Funds Warehousing Investments: Traps for the Unwary
One of the challenges facing venture capital firms is how to handle investments in portfolio companies prior to the initial close (“Initial Close”) of a new fund (“New Fund”). Typically, the investment advisor (“VC Advisor”), or a person wholly owned or controlled by the VC Advisor, will make such investment, “warehouse” it, and then transfer such investment to the New Fund promptly after the Initial Close. This strategy has been very effective for many fund managers as it enables them to commence the creation of a diversified portfolio of interesting companies for its future limited partners prior to the time of the Initial Close. While this is an effective strategy for fund raising purposes, VC Advisors should be aware of some of the pitfalls with warehousing investments.
Tech Funding, IPOs are Less Frequent in 2024
The number of venture capital dollars flowing to Greater San Diego technology companies is becoming less frequent in 2024, a trend mirroring national investment activity that appears to favor bigger bets at the expense of more frequent ones.
Crossing Borders: Key Considerations for International VC Investments
You’re a foreign angel investor or venture fund looking to invest in start-ups located in the United States and are wondering: What are the differences in terms that I can expect? What other considerations should I know about? Well, we are here to outline some of the key considerations for international venture capital investors investing in the US.
Year in Review: Laws Impacting Employee Non-Competition, Non-Solicitation, and Non-Disclosure Agreements – What to Know, What to Do and What to Expect in 2024
Year in Review: Laws Impacting Employee Non-Competition, Non-Solicitation, and Non-Disclosure Agreements – What to Know, What to Do and What to Expect in 2024
New York State Offers Matching Investment Funds for Qualified Early Stage Start-Ups
New York Governor Kathy Hochul recently announced the establishment of a new initiative to match up to $30 million in funding received by early stage companies operating in New York. Through the Pre-Seed and Seed Matching Fund Program, start-ups could receive $50,000 to $250,000 to match investments in the form of convertible debt, a Simple Agreement for Future Equity (SAFE), or equity securities.
In this alert, we provide an overview of the program and its eligibility requirements.
Extending for Success: The Rising Trend of Extension Rounds and the Importance of Due Diligence
In light of a slowing market, companies that have already secured venture capital funding are increasingly resorting to extension rounds as a means of obtaining additional capital in an attempt to avoid a down round financing and extend their runway until the fundraising environment improves. Extension rounds can provide several strategic benefits for startups.
INSIGHT: Important Matters to Consider When Facing a Possible Down Round Financing
The financial press has been reporting that investors are concerned that the United States economy may be heading toward a recession. In light of this and other factors creating uncertainty in the financial markets, investors are questioning the valuations that companies achieved during the heady times of 2020 and 2021, and are indicating that if a company needs to raise funds, they may need to consider a “down round” financing. A down round financing is when a company’s valuation is lower and its shares are sold at a lower price per share than the company’s most recent financing round.
NEW RULE 148 TO EXEMPT “DEMO DAYS” FROM GENERAL SOLICITATION
Effective as of March 15, 2021, the SEC adopted the new Rule 148 which permits entrepreneurs to speak more openly about opportunities for investment in their new enterprises at “Demo Days.” Outlined here are the essential elements of the new Rule 148.
Crowdfunding Considerations for Early Stage Companies
The SEC expanded its capital raising rules for Regulation Crowdfunding. Since, there has been significantly more interest from start-ups to make use of the expanded investment opportunities. This article highlights key considerations for start-ups raising capital by crowdfunding.
Waivers of Obligations and Deadlines under the Investors’ Rights Agreement
Founders should understand and appreciate each of the new requirements to which they are subject by virtue of their company’s IRA. This article reviews two provisions of the IRA where a company’s management team might find itself stymied if it fails to appreciate the relevant deadlines and deliverables, many of which may not have applied to the company before it took on new investments.
Mintz Minute: Simple and Fast Ways to Write an Executive Summary
In this video, Jeremy Glaser explains simple and fast ways to write an executive summary.
SEC Proposes Relief from Broker-Dealer Registration for Certain Finders
By Steve Ganis
The SEC recently published in the Federal Register a proposed notice of an exemptive order (the “Proposal”) that would, subject to limitations and conditions discussed below, exempt certain individuals seeking to find investors for private companies and unregistered funds (“Finders”) from federal broker-dealer regulation requirements. Among other things the Proposal would allow Finders to earn commissions or other transaction-based compensation.
MintzEdge 101: Negotiating Your Venture Term Sheet – Ryan Floyd, Storm Ventures
In this podcast, Jeremy Glaser, Co-chair of the Mintz Venture Capital & Emerging Companies practice, and Ryan Floyd, founder and partner at Storm Ventures, discuss important points for entrepreneurs to be aware of when negotiating a venture capital term sheet.
COVID-19 and Down-Round Financings
By Jeremy Glaser, Sebastian Lucier, and Sebastian A. Bacon
Although no one can predict the long-term economic impact of COVID-19, early indications show similarities to the last significant economic downturn that started in 2008. During that period, venture capital investment decreased significantly both domestically and abroad — in the first quarter of 2009, alone, there were double-digit declines in venture financings. The decrease in available capital during that time period led to a significant uptick in financing rounds at lower valuations than in previous rounds, or so-called “down-round financings.” Companies should be prepared for a similar occurrence, and be ready to take precautionary steps in order to minimize risks relating to a down-round financing.
Fixing Void or Voidable Stock Issuances with Section 204 of the Delaware General Corporation Law ("DGCL")
By Paula Valencia-Galbraith
Has your corporation sold stock before having a sufficient number of shares authorized under its Certificate of Incorporation? The DGCL requires that the authorized capital be increased before the sale is consummated because the Corporation needs to create the stock it is going to sell. Without the stock’s creation there is nothing to sell to the investors and failure to increase the authorized capital could deem the sale and issuance void or voidable due to the Corporation’s failure to comply with the technicalities of the DGCL. Before 2014 there was no mechanism that could retroactively fix issuing equity with an insufficient number of authorized capital or any other type of transaction that required certain technical requirements by the DGCL. These types of mistakes led to potentially embarrassing conversations with a corporation’s investors but in 2014 this all changed.
Seed Funding Basics
By Jason Miller
After forming a company and dividing equity amongst the co-founders, a founding team’s next questions are typically about funding. Often among ambitious founders, venture capital first comes to mind. Today, venture capital is well-suited for growing early-stage companies but rarely available for truly starting companies. In recent years, venture capital has been deployed in larger amounts to fewer companies and there has been a corresponding shift toward larger and more frequent seed or angel investments.
IRS Provides Additional Guidance on the Tax Treatment of Cryptocurrency
By Avi Reshtick, David Salamon
Nearly five years after the release of the only published guidance in the area, on October 9, 2019, the Internal Revenue Service (the “IRS”) issued additional guidance on the tax treatment of cryptocurrency. The additional guidance was delivered in the form of Rev. Rul. 2019-24 (the “Crypto Ruling”) and a set of Frequently Asked Questions (“Crypto FAQs”) that applies the principles outlined in the IRS’ previously issued guidance (Notice 2014-21) to an expanded set of situations.
Liquidity for Private Company Securities — Rule 144
By Joshua Bergmann
For early stage private companies that need to effectively utilize available capital, often times attracting talent comes at the expense of issuing shares of stock (or options to purchase shares of stock) of the company through the use of an equity incentive plan.
What Lessons Can Investors Learn from SoftBank's Investment in WeWork?
Few investments by venture capital or private equity funds have undergone as much scrutiny as the investment by SoftBank in WeWork.
Social Impact Investing: Benefits and Recommendations for Investors
By Nadia Do Canto
On August 19, 2019, nearly 200 chief executives met to redefine the purpose and role of businesses in society. The outcome of this meeting was a paradigm shift from the long-held corporate orthodoxy that shareholders’ interests are supreme to a standard that promotes “an economy that serves all Americans.”
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