January 2011

Ledbetter, Andrew D._photo_3659.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

The SEC yesterday proposed rules on the “accredited investor” net worth standard, to implement Section 413(a) of the Dodd-Frank Act. Not much “new” here, but the proposed definition is:

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.

The “excluding the value of” clause tracks Section 413(a) of Dodd-Frank (and should already be in forms at this stage). The “calculated by subtracting” clause is intended to clarify that you only exclude the net equity (e.g., include the net debt), which is consistent with the SEC C&DI issued on this topic following Dodd-Frank. Essentially, this means if you have net equity in your home, you can’t count any of that net equity in determining whether you meet the $1M net worth standard. And if you have any debt in excess of the value of the home, that net debt would count against your net worth.Continue Reading ** UPDATED ** Net worth standard for ‘accredited investors’

pic-asher.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

 Steve Yentzer and I just submitted comments to the SEC on the proposed rules issued under the Dodd-Frank Act.  Our comments generally echo those raised by the NVCA in its letter to the SEC, including our encouragement that the SEC relax the rules defining “venture capital funds” so that fund managers can operate without fear of inadvertently violating the rules and becoming subject to Adviser’s Act regulation. 

The full text of our letter is below.Continue Reading Our Comment to the SEC’s Proposed Rules under the Adviser’s Act

pic-asher.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

 The National Venture Capital Association (NVCA) just released its comment memorandum to the SEC regarding the definition of venture capital fund for purposes of the new exemption from Adviser’s Act registration under the Dodd-Frank Act.  I’ve previously written about the proposed rules on the blog here.

See this link to the NVCA blog post, including links to their comment letter.  Notably, the comment letter includes requests for the following:

  • Allowance for up to 15 percent of the fund’s capital to engage in activity that


Continue Reading NVCA Comment to SEC Regarding Adviser’s Act Rules

pic-asher.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

One question that I’m often asked is how the expenses and fees break down in a typical VC fund structure.  Typically, a VC fund will have three categories of charges (aside from profits or carried interest): organizational expenses, fund expenses and management fees.  This post is a rough overview, based on my experience, of how costs are categorized in those groups and paid by a typical fund.  These categories also control whether the expenses generally are paid by fund managers (out of fees) or by fund investors (as expenses).Continue Reading How VC Funds Work – Expenses and Management Fees

Mathsphoto © 2010 Mike Hammerton | more info (via: Wylio)In the world of startup financing, the term “pre-money valuation” is used to describe the value of your company prior to a financing. The pre-money valuation is used to calculate the price per share of the stock that will be sold in the proposed financing (the “Offering Price”) using the following formula: (x) pre-money valuation divided by (y) the company’s share denominator (prior to the financing) equals (z) the Offering Price.

While the pre-money valuation is usually the centerpiece of valuation discussions, it is also important to understand how the “(y)” share denominator figure can play a significant role in ultimate dilution of the company’s existing shareholders from the proposed financing. (more after the jump)Continue Reading Financing Your Startup: Understanding Pre-money Valuation