Congratulations to Vanessa Fox, one of the Women in Tech we've profiled in the past. Vanessa has joined forces with RKG, a search and digital marketing agency, combining her enterprise-level search analytics platform with the fast growing agency. Some of the press around the deal can be found on Geekwire, Business Wire and RKG’s Blog.
The world is changing for venture funds and similar funds in Washington State, and not necessarily for the better. It used to be the case that managers of venture or other private funds did not need to file anything with the SEC or state securities regulators (other than Forms D incident to their fundraisings). Dodd-Frank changed all that – but provided that investment advisers solely to venture capital or other small private funds may be exempt (based on Congress’ belief that these funds posed no systemic risk to the nationwide financial system).
There are now SEC regulations that define the new exemptions for the managers of venture funds (discussed in more detail here) and for the managers of private funds with less than $150M management (discussed in more detail here). Even if exempt, however, managers of venture funds and private funds with AUM of less than $150M now must publicly report certain high-level information, which becomes publicly available. For example, here is the exempt reporting adviser Form ADV for Union Square Ventures.
These rules settled out a few years ago. Right now, the bigger issue is with state regulators. State regulatory regimes need to be updated in order to conform to Dodd-Frank. The North American Securities Administrators Association (NASAA) created model rules for state regulators to follow, which adopted the same venture capital and private fund exemptions. Many states, including California, have now adopted the NASAA model rules.
Article prepared by and republished courtesy of our colleagues in the White Collar, Corporate Crime and Investigations practice group of DLA Piper; originally published here: http://www.dlapiper.com/investigative-crises-surviving-until-help-arrives-05-02-2013/.
The first minutes and hours after the government executes a search warrant, serves a subpoena, or otherwise lets you know you’re under investigation can be critical in determining the investigation’s eventual outcome. A company’s immediate response may make the difference between an investigation that goes nowhere and one that leads to the company’s demise.
This handbook outlines the key do’s and don’ts for company executives and in-house counsel during the initial period before counsel arrives. It covers in the most basic terms what to do when:
- The government executes a search warrant, either at corporate headquarters or a corporate facility.
- The government serves a grand jury or administrative subpoena requiring production of vast quantities of documents in a very short time.
- Government agents appear at a company’s manufacturing or other facility and start interviewing low-level employees.
- Company counsel learns that government agents have been contacting employees at home in order to interview them or serve grand jury subpoenas.
- Government agents show up unannounced at company headquarters and ask that a company executive speak with them “voluntarily.”
- A government contracting officer shows up at an otherwise routine audit with a small army of other government agents.
- OSHA agents arrive at a company facility immediately after an employee is seriously injured or killed in an explosion or industrial accident.
- A news reporter calls with questions about an allegedly nefarious company practice, drawing on information received from a whistleblower.
Some findings of the 2013 survey:
- Funds see "management capabilities and effective strategy and execution as primary drivers of successful portfolios."
- Outdated IT systems, under-qualified IT personnel and inadequate infrastructure become apparent following acquisitions, often impacting critical areas of the business.
- Active integration leadership and experienced team members are important to success.
- Firms frequently find weaknesses in financial reporting (including the frequency, accuracy and efficiency of reporting as well as the tracking of operational metrics).
Download the full survey report here.
Investor and serial entrepreneur Jonathan Sposato has seen enough startup pitches in his day to know what he likes. In this Geekwire post from earlier this year, he shares his three favorite things to hear from founders seeking an investment. One key piece of advice from Joanathan that is simple and straightforward: your investors want to know their money is going to be put to good use.
With that in mind, he advises founders to “speak provocatively and ambitiously about their concept,” to share names of other well-respected investors who are already on board, and to provide a detailed plan for using the funds they are requesting.
Jonathan’s suggested approach in one sentence:
Please tell me: How you’re going to crush it, who else agrees with you besides me, and how you are going to spend my money.
Compliments of Jason Smith of Kidder Mathews, attached is a Seattle-area office real estate market review for Q1 2013. As the report notes, the first quarter included a quiet encore of the performance seen near the end of 2012. Leasing activity was modest, but positive, tenants showed renewed interest in the middle of the Seattle central business district (CBD), Amazon leased any large space that came available in the CBD, and investors continued to be bullish on the Seattle office market.
The performance of the office market is especially encouraging in light of the fact that general economic indicators continue to vacillate. One example significant to the office market is that after six quarterly increases in forecasted 2013 job growth, the March 2013 Puget Sound Economic Forecaster reduced the growth rate to 2.6%. It was a minor adjustment, reflecting the inability of the national economy to gain consistent momentum and the likely effects of the sequester. Nonetheless, the overall performance of the office market is still expected to be similar to that seen in 2012.
The Global Corporate Venturing (GVC) group has released its first quarter report making clear that there is a consolidation of traditional financial venture capital and the growth of corporate venture capital. GE's investment of $105M in Pivotal is a great example. What this means for both the early stage company community and the venture capitalists is a need to truly focus on the customer - early and often. Corporates provide customer access and when a new company can demonstrate that its offering provides true customer value, high growth and bigger exits will follow.
These findings highlight for me Harvard Business Review’s May 2013 recent article outlining the lean start up framework. Lean start-ups are iterative, customer focused and the wave of the future. They require early partnership and interaction with customers, buyers, strategics and financing sources all at the same time.
Check out these two reports showing this convergence around the customer in the links below: here is a link to the GVC report; and here is one to the HBR article called "Why the Lean Start-Up Changes Everything" by Steve Blank.
Choosing the best type of entity for a company can be a challenge. C corporations are the norm for most emerging growth businesses, particularly those raising money from investors. However, LLCs are becoming more widespread, even for operating businesses. Founders may want to have the tax benefits of LLCs, which are not subject to a company-level tax (as is the case with C corporations) and may enable more tax deductions.
This potential for tax savings does not, however, come without a cost. LLCs tend to be more complicated and expensive to setup and manage, particularly for operating businesses. LLCs can become even more tricky for businesses that want to issue equity to incentivize employees or other service providers. This article addresses some of the ways LLCs can use equity to incentivize service providers, and the implications of each option (pardon the pun).
Nearly every physical point of the Massachusetts start up community has been touched by the Boston marathon bombing and on-going manhunt. Back Bay, where the marathon concludes, hosts Flybridge, HLMVP, Partners Innovation Fund, Excel Medical, Siemens Medical, Encandle, and many others. Events after Monday, have spread fear further.
Yesterday’s shootings and death of an MIT police officer are tragic. The ecosystem of MIT’s start-up community – at a most basic level - is predicated on safety and the proximity of like-minded individuals. Today, justified fear bolsters the police advisory that Cambridge residents – and those in nearby Watertown, Newton, Waltham (Home of the 128 Technology Belt), Belmont, Allston and Brighton remain in-doors. All public transit is shut down. Businesses have been asked not to open.
On Monday, I was visiting colleges with my high school senior. I learned of the initial events on Twitter and Facebook minutes after they happened. These timely communications give me hope that, despite this terrorist attack, our technological advantage, innovative knowhow and community will continue to come together. I’m on-line at 6 am EST after a scared night – but am connecting nonetheless. Meet-ups have been re-scheduled, not cancelled. While businesses may not be physically open, start-up business will continue.
The Angel Resource Institute, Silicon Valley Bank and CB Insights recently released their angel group update 2012 year in review, the Halo Report. The Halo Report analyzes angel investment activity and trends in the United States. Here are a couple interesting 2012 highlights:
- The median angel round size was $600K;
- The median angel round size was $1.5M when angel groups co-invest with other types of investors;
- The median pre-money valuation for early stage angel group deals was $2.5M;
- 63% of angel group deals were in companies with revenue;
- 56% of angel group deals were in new companies;
- 11% of 2012 deals were convertible debt (up from 6% in 2011);
- California was the most active region for angel deals, both in number of deals (18.1%) and total dollars invested (23.1%), but California was lower in both categories compared to 2011; and
- The top three industry sectors attracting angel investment were internet, healthcare and mobile, both in number of deals and total dollars invested.
If you are reading this post, then you probably share my belief that one of the best things our government can do to spur economic and job growth is to support the startup community. In recent years, government entities ranging from state (See Maryland’s proposed tax credit to support investment in cybersecurity industry) to federal (See JOBS Act: What matters most for startups and VCs) to the IRS (See Fiscal Cliff Bill to renew 100% QSBS tax break) have enacted programs designed to enable more and easier investments into startup companies (in the US). However, many commentators have argued that such efforts are not enough.
One country that appears dedicated to its startup community, and that has a very interesting and seemingly effective model for facilitating growth, is Israel. Last week I met with Daniel Marcus of the Israeli law firm Amit, Pollak, Matalon & Co. to discuss emerging growth and venture capital markets and I took the opportunity to ask Daniel more about Israel’s government funding model via its Office of the Chief Scientist (OCS). Luckily, Daniel and his colleague, May-ad Katz, had previously written a great article titled “Exporting technology from the ‘start-up’ nation” summarizing the OCS funding system and related encumbrances.
Delaware affirms that reverse triangular mergers do not trigger contract clauses generally prohibiting assignment
Negotiation fatigue is an age-old problem in completing any contract – and often, whether fair or not, the further back in the document the clause is positioned, the greater the fatigue.
A choice-of-law provision, which decides which jurisdiction’s law shall govern the contract, is almost always near the last clause in a contract. How often have dueling sets of lawyers (and more frequently, frazzled and puzzled clients who simply want a contract done before the end of the quarter) exhausted themselves on other provisions, only to trade away choice of law for a perceived gain elsewhere in the document?
Delaware Vice Chancellor Donald Parson’s February 22 decision in Meso Scale Diagnostics vs. Roche Diagnostics (Delaware C.A. No. 5589-VCP) highlights how important this seemingly mundane provision can be years later in a change-of-control situation. It also highlights a potentially critical divergence between Delaware and California state law.
On March 12, 2013, the Federal Trade Commission issued its long-awaited update to its 2000 guidance on disclosures in online marketing and advertising.
The guidance, entitled .com Disclosures: How to Make Effective Disclosures in Digital Advertising, not only reaffirms many of the FTC’s longstanding principles for effective online disclosures, but also provides guidance as to how those principles will be applied to new technologies that have emerged since 2000, such as mobile phones and tablets with more limited space, banner ads and multimedia messaging, and social media platforms such as Facebook and Twitter.
The FTC has broad powers under Section 5 of the FTC Act to protect consumers from “unfair and deceptive acts or practices.”i Under the FTC Act, the FTC has long required effective disclosures for claims that would otherwise be deceptive or misleading without them. .com Disclosures is designed to help businesses comply with the FTC Act by providing examples and direction on how to avoid unfair and deceptive practices through appropriate disclosures in their online and mobile marketing.ii
Although the new guidelines do not carry the force of law, they provide insight into how the FTC will apply the FTC Act to online and mobile marketing disclosures. Advertisers and marketers are well advised to review and potentially modify their existing and future online advertising to ensure they are complaint with these guidelines.
A great reminder compliments of our colleague Mark Radcliffe: On March 16, the US patent system will undergo a fundamental change from the current “first to invent” to a “first to file” system.
By way of quick background, a “first to invent” system means that even if another party files a patent application on your invention first in the US Patent and Trademark Office, you will still be entitled to obtain a patent on your invention if you can prove you created the invention first. The new “first to file” system, which becomes effective on March 16, 2012, provides that you can no longer get a patent by proving that you actually created the invention before the filing date of the first patent application.
Patents have become an increasingly important part of the assets of startups, especially since most startups exit through merger. PwC, in its recent report on US technology M&A, explains that “companies with strong patent portfolios continue to be likely targets for future acquisitions, as modern competitive pressures force businesses to acquire and defend intellectual property rights.”
On February 22, 2013, in its Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH decision, the Delaware Court of Chancery held that a reverse triangular merger is not an assignment by operation of law, meaning that licensor consent is not required for the surviving entity to retain the target company’s rights, benefits and obligations under an existing technology license.
For background, in a prior post, we discussed the impact of common M&A structures, as well as the impact of common anti-assignment provisions, on the assignability of contracts of the target company (in other words, whether or not the target company is required to obtain a third party’s consent to “assign” a contract in a M&A transaction).
The Meso decision is of interest because it is contrary to the position taken by the Northern District of California court in its1991 decision, SQL Solutions, Inc. v. Oracle Corp., which held that a reverse triangular merger constitutes an assignment by operation of law in the context of a technology license. In SQL Solutions, the court held that a legal change in ownership of a business results in a transfer if “it affects the interests of the parties protected by the nonassignability of a contract.” Delaware courts have consistently held that a corporation may engage in a stock purchase transaction without effecting an assignment by operation of law. In its Meso decision, the Delaware court concluded that a reverse triangular merger is not an assignment by operation of law reasoning that “[b]oth stock acquisitions and reverse triangular mergers involve changes in legal ownership, and the law should reflect parallel results.”
Courtesy of John Reed, a partner in DLA Piper’s Delaware office, here is a more detailed summary of the case. The full text of the case is also available here: Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH, C.A. No. 5589-VCP (Del. Ch. Feb. 22, 2013).