Posted by Asher Bearman on May 28, 2013

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Asher Bearman
asher.bearman@dlapiper.com

As readers of this blog know, Washington State is proposing new rules that will require more fund managers to become registered investment advisers.  These rules were originally proposed in the second half of last year and, in response to preliminary comments, the Securities Division of the Washington State Department of Financial Institutions (DFI) proposed new rules for comment by May 21, 2013.  Quoting from the DFI's Notice to Interested Parties dated March 27, 2013:

In August 2012, the Securities Division circulated an early draft of rule amendments to the interested parties list. We also conducted a small business economic impact survey. In response to comments received from interested persons, and in response to the results of the small business economic impact survey, the Securities Division made certain changes to the proposed rules compared to the earlier draft...

The Securities Law Committee of the Business Law Section of the Washington State Bar Association, representing attorneys practicing in this area throughout Washington State, submitted formal comments to the DFI's request.  Their comment letter is included below.  Full disclosure, I'm not a member of the Committee, but they asked me to help them in drafting their formal response with respect to how the rules relate to private fund advisers.

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Posted by Megan Muir on May 09, 2013

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Megan Muir
megan.muir@dlapiper.com 

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.

Posted by Trent Dykes on April 17, 2013

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Trent Dykes
trent.dykes@dlapiper.com

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.

A copy of the full report can be found here and the infographic can be found here. 

Posted by Trent Dykes on April 02, 2013

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Trent Dykes
trent.dykes@dlapiper.com

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.

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Posted by Megan Muir on February 25, 2013

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Megan Muir
@megan_muir 

Q&A: Why this former Microsoft exec wanted to become a venture capitalist  Ted Kummert announced on February 5th that he would be leaving his longtime position as a Microsoft executive to take a new role at venture capital firm, Madrona Venture Group. In this Q&A with John Cook of Geekwire, he answers questions about his experience and what caused him to take the leap into VC. “I...look forward to spending time, more broadly, across the Madrona portfolio of companies. I don’t tend to single out. I see so much opportunity, whether we are talking about consumer or we are talking about B2B — I think there is significant opportunity across all of that space,” Kummert said.

He added that his interest is especially drawn towards innovation in the cloud, explaining that “The cloud is really one of those things that is going to change things for the enterprise.” As he moves on from a long career at Microsoft, most recently as head of the company's Data Platform group, Kummert is looking forward to becoming part of Seattle’s flourishing startup ecosystem. “It is just a fantastic thing to be a part of.”

Posted by Asher Bearman on January 13, 2013

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Rachel M. Perkins
rachel.perkins@dlapiper.com

We often receive questions about the application of the “accredited investor” definition (copied at the end of this post) in Rule 501(a) of Regulation D, and one that’s come up from time to time is how trusts generally qualify as “accredited investors.”  Whether a trust is an “accredited investor” is a fact-specific determination, but generally speaking, the SEC has provided some guidance on trusts in the form of no-action letters and the Compliance and Disclosure Interpretations (“C&DI”).

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Posted by Trent Dykes on January 09, 2013

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Trent Dykes
trent.dykes@dlapiper.com

Today the Angel Resource Institute, Silicon Valley Bank and CB Insights released their angel group update for Q3 2012, the Halo Report. The Halo Report analyzes angel investment activity and trends in the United States. Here are a couple interesting highlights:

  • The median angel round size was $640K;
  • The median angel round size was $1.59M when angel groups co-invest with other types of investors;
  • The median pre-money valuation for early stage angel group deals was $2.6M;
  • California was the most active region for angel deals, both in number of deals (21.4%) and total dollars invested (28.0%); and
  • The top three industry sectors attracting angel investment were internet, healthcare and mobile, both in number of deals and total dollars invested.

A copy of the full report can be found here and the infographic can be found here. 

Posted by Trent Dykes on January 03, 2013

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Trent Dykes
trent.dykes@dlapiper.com

One provision included in the fiscal cliff bill (aka the Taxpayer Relief Act of 2012), but seemingly unnoticed by the general press, was the unexpected renewal of the 100% tax exclusion for capital gains on Qualified Small Business Stock (“QSBS”). This QSBS tax exemption, which had previously expired at the end of 2011, would be extended for investments made through the end of calendar year 2013 (and would be retroactively effective for investments made in 2012). A summary of the QSBS renewal provisions covered in the fiscal cliff bill can be found on Joe Wallin's blog here.

For more information on the other provisions of the Taxpayer Relief Act of 2012, our colleagues prepared a great summary that can be found here.

Posted by Trent Dykes on November 03, 2012

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Mark Radcliffe
mark.radcliffe@dlapiper.com

The Wall Street Journal (WSJ) recently noted the increasing importance of the corporate venture capitalists in the innovation ecosystem. WSJ base their conclusion on a recent Boston Consulting Group (BCG) report that describes the change in corporate venture capital.

I have seen three of the four cycles in the BCG report and I agree that this cycle is different because of the critical role of innovation in large companies. Innovation has become essential for large corporations and corporate venture is a significant tool to manage innovation. As the BCG report notes in conclusion:

Considering the benefits that venture investing offers when best practices are employed, the real question is whether corporations can afford not to join the game.

The BCG report focuses on the return of corporate venture capital, but another critical trend is the rise of Chief Innovation Officers (such as Debby Hopkins at CitiBank and Marie Quintero-Johnson of Coca Cola). These executives coordinate their company’s innovation strategy using tools from corporate venture to internal piloting, internal research and development, collaborations and mergers and acquisitions. The role of the Chief Innovation Officer was described in a very perceptive analysis by James Mawson in the September 2012 edition of Global Corporate Venturing.

Posted by Andrew Ledbetter on August 30, 2012

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Andrew Ledbetter
andrew.ledbetter@dlapiper.com

 

As anticipated in our previous blogs, the SEC yesterday proposed rules to permit general solicitation and general advertising in Rule 506 and Rule 144A offerings.  The release proposes to create a new Rule 506(c), in which the prohibition against general solicitation would not apply to offers and sales of securities, provided that:

  • The issuer takes reasonable steps to verify that the purchasers are accredited investors;
  • All purchasers of the securities are accredited investors, either because they come within one of the enumerated categories or the issuer reasonably believes that they do, at the time of the sale of the securities; and
  • All terms and conditions of Rule 501 (definitions), Rule 502(a) (integration) and Rule 502(d) (limitations on resale) are satisfied.

Effectively, the SEC has proposed a new exemption that would permit sales of restricted securities to accredited investors, without any manner of sale limitations or specified information requirements. 

The main issue in the proposal is what issuers must do to “take reasonable steps to verify” that purchasers are accredited investors.  The model the SEC has proposed would neither mandate specific verification steps nor assure issuers and investors that adequate steps have been taken.  The model will likely require issuers to obtain reliable third party information most of the time, rather than relying on questionnaires, contractual representations, or similar confirmations from a purchaser.

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