The Venture Alley - A blog about business and legal issues important to entrepreneurs, startups, venture capitalists and angel investors.

CONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

In today’s age of social media success stories, there is something superficially interesting about crowdfunding as a high-level idea.  There has certainly been no shortage of attention to crowdfunding in the press and from business people.  But in looking at the new JOBS Act exemption for crowdfunding, I see lots of reasons why many companies will avoid it.  While this list could be expanded – and will need to be revised as the SEC adopts rules to implement the new exemption – to get things started I offer up these ten reasons:

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

The National Venture Capital Assocation (NVCA) recently released information regarding Q1 2012 VC fundraising and investment amounts.  They note that in the first quarter of the year, 42 venture funds raised a total of $4.9 billion while venture funds invested $5.8 billion in 758 deals in the same period.  You can find additional data, including details broken out by geographic regions, on the NVCA site here.

CONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

As a quick follow up on this topic from a few months ago (prior post can be read here), the SEC has approved alternatives to Nasdaq's historical $4 minimum bid price listing standard.  Under the new alternative listing standards, a security may qualify for listing on the Nasdaq Capital Market if: 

$3/share price -- for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $3 per share and the issuer has either:

• Equity Standard:  (A) stockholders’ equity of at least $5M; (B) market value of publicly held shares of at least $15M; and (C) a two year operating history; or
• Net Income Standard:  (A) net income from continuing operations of $750,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years; (B) stockholders’ equity of at least $4M; and (C) market value of publicly held shares of at least $5 million; or

$2/share price -- for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $2 per share and the issuer has (A) market value of listed securities of at least $50M; (B) stockholders’ equity of at least $4M; and (C) market value of publicly held shares of at least $15M.

In addition, the issuer must also demonstrate that it has:

• Net tangible assets in excess of $2M if it has been in continuous operation for at least three years;
• Net tangible assets in excess of $5M if it has been in continuous operation for less than three years; or
• Average revenue of at least $6M for the last three years.

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CONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Crowdfunding may provide an interesting way for some companies to raise capital.  It’s definitely getting a lot of the hype since passage of the Jumpstart Our Business Startups (JOBS) Act earlier this month.  I’ve read articles talking about how crowdfunding is going to disrupt funding for small businesses (in a good way).  Personally, I don’t see it...certainly not in the short-term.  Perhaps the SEC’s pending rulemaking will make this an amazing option, but right now I’m not sure that otherwise financeable companies will find this option better than the other existing methods.  The currently projected costs are simply too great.  The process is expensive both initially in setting up the intermediary/crowdfunding process itself (vs. dollars raised) and also on an ongoing basis in terms of shareholder maintenance.  Add to that the likelihood that crowdfunded companies, at least early on, probably will be targeted by plaintiff class-action lawyers, possibly based on nothing more than the fact that the concept is new and untested.  SEC rulemaking is scheduled for 270 days from passage but may take even longer.  Until then, anyone trying to setup a crowdfund will be doing so at their own peril, without an understanding of the rules that may apply to them retroactively.  In short, for private companies, crowdfunding remains an enigma and all we reasonably can do for the rest of this year is debate its merits.

For fund managers, however, the implications of crowdfunding are already clear – you can’t use it.

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CONTRIBUTED BY
Megan Muir
megan.muir@dlapiper.com 

As companies struggle to protect and safeguard personal information, managing the legal responsibilities related to processing personal data consistent with applicable laws is a growing challenge. A well-constructed and comprehensive compliance program can provide an effective risk-management tool. Our colleagues from the DLA Piper Information Law Team have published a handbook with an overview of the applicable privacy and data protection laws and regulations across 58 different jurisdictions, including a section on enforcement. Edited by Cameron Craig, Paul McCormack, Jim Halpert, Kate Lucente, and Arthur Cheuk, the DLA Piper 2011/2012 Data Protection Laws of the World Handbook is available here.

For those of you interested in the education and technology sector, you might find Arizona University’s Education Innovation Summit of interest. The Education Innovation Summit brings together nearly 100 education and education-focused technology companies and hundreds of other education industry thought leaders, entrepreneurs, investors and educators focused on driving a K-12 and higher education revolution through innovation. The keynote speakers include Michael Milken (Chairman of The Milken Institute), Reed Hastings (CEO of Netflix), and Jeb Bush (former Governor of Florida and founder and chairman of the Foundation for Excellence in Education).  You can learn more about the Education Innovation Summit taking place on April 16-18 in Scottsdale, Arizona here.

CONTRIBUTED BY
Trent Dykes
trent.dykes@dlapiper.com

This post is part three of our series exploring various aspects of due diligence in the context of a merger and acquisition (M&A) transaction. Our prior posts discussed M&A due diligence generally and its objectives and described the due diligence process. This post will focus on assembling your due diligence team of experts and the due diligence request list.

Building your due diligence team of experts

Every deal is different, and one of the first priorities in the due diligence process is to assemble a diverse due diligence team. The team’s collective expertise should cover the various business, legal, technical, and financial matters unique to the seller and the deal at hand. This means not only assembling the appropriate legal team, but making sure that the buyer or seller has designated the appropriate in-house contacts to address questions that may arise concerning financial, customer, marketing, technical/engineering, information technology/infrastructure or personnel matters.

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On March 27th, the US House of Representatives overwhelmingly passed the Jumpstart Our Business Startups Act (JOBS Act) with the Senate's recent amendments. Next stop is the President's desk for what is anticipated to be speedy signature. The legislation is intended to improve the ability of emerging growth companies to access capital by relaxing certain rules in private offerings as well as in the period following a company's initial public offering.  Read the details in this summary by our colleagues Christopher C. Paci, Edward Batts, Ann Lawrence, Jason C. Harmon, Christopher B. Edwards, and Andrew D. Ledbetter.