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According to the MoneyTree Report by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA), venture capitalists invested $29.4 billion in 3,995 deals in 2013, an increase of 7% in dollars and a 4% increase in deal volume over 2012 levels.  The full Q4 and FY 2013 investing trends are available here.

A couple of interesting highlights for 2013:

  • Internet-specific companies captured $7.1 billion, marking the highest level of Internet investment since 2001.
  • Investments into the software industry also reached their highest level since 2000 with $11.0 billion flowing

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Continue Reading 2013 annual venture investment dollars rise 7%

As we’ve previously blogged, in July 2013 the SEC adopted rules that permit general solicitation and general advertising in connection with certain offerings of securities to accredited investors.  Yesterday, to help the markets understand some common interpretative questions associated with these new rules, the SEC issued several new Compliance and Disclosure Interpretations.  The new interpretations mainly address:

  • when and how companies may switch between “old” Rule 506(b) (no general solicitation) and new 506(c) (general solicitation permitted),
  • the need to amend Form D if such changes are made,
  • the

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Continue Reading SEC Provides Interpretations on Rule 506(c)

Just a reminder that the temporary 100% exclusion for Federal capital gains tax on the sale of “qualified small business stock” (“QSBS”), under Section 1202 of the IRS regulations, is set to expire at the end of calendar year 2013.

The QSBS tax exemption was originally enacted to incentivize investment in certain small businesses by providing (non-corporate) investors the opportunity to exclude all or a portion of their gains from Federal capital gains tax in certain circumstances.

In order to qualify as QSBS, stock must be purchased from a domestic C corporation that (i) is engaged in an active trade or business (as defined by the IRS regulations) and (ii) has gross assets which do not exceed $50 million (measured when the stock is purchased). Further, in order to qualify for the tax exemption, the investor must hold the qualified stock for at least five years from the date of purchase. In addition, the timing of an investor’s purchase of the qualified stock will impact the amount excluded from Federal capital gains tax that may later apply when the stock is ultimately sold, according to the following percentages:
Continue Reading Tax planning for year-end; expiration of the 100% tax exemption for gain on QSBS

CONTRIBUTED BY Trent Dykes and Nathan Luce

Earlier today, the Securities and Exchange Commission (SEC) took an important step in making securities-based crowdfunding a reality for many small companies with the release of its proposed rules governing crowdfunding. The proposed rules, called “Regulation Crowdfunding,” were drafted in connection with Title III of the JOBS Act. Whereas traditional crowdfunding involves a company offering things like advanced product or information releases, premium services or the ability to contribute to a given cause in exchange for an investment, Regulation Crowdfunding would allow those same companies to issue actual securities (i.e., debt or equity) in exchange for investments—a dramatic shift from what has become fairly common practice on websites such as Kickstarter or Microryza over the past few years.

The SEC’s Regulation Crowdfunding proposal would implement rules governing the offer and sale of securities under new Section 4(a)(6) of the Securities Act of 1933 (Section 4(a)(6)). The proposal also provides a framework for the regulation of registered funding portals and brokers, whom issuers must use as intermediaries in their crowdfunding efforts pursuant to Section 4(a)(6). In addition, the proposal would exempt securities sold pursuant to Section 4(a)(6) from the registration requirements of Section 12(g) of the Securities Exchange Act of 1934.
Continue Reading Overview of Proposed SEC Crowdfunding Rules

CONTRIBUTED BY
Trent Dykes, Megan Muir and Kiran Lingam (guest contributor from SeedInvest)

I. Introduction / Background

With the passage of the JOBS Act, the regulation governing most private securities offerings is undergoing a dramatic makeover. Congress tasked the Securities and Exchange Commission (SEC) with developing new rules allowing companies to generally solicit funds, subject to restrictions as determined by the SEC. In July 2013, the SEC issued final rules on this topic and also proposed additional rules that are not yet final. Managers of incubators, accelerators, angel groups and others involved in startup capital raising have expressed great concern about how the revised regulations will affect them, particularly with respect to their public-facing events.

Whether presenting at a demo day event, angel group meetings or business plan competitions constitutes “general solicitation” is a question that has caused great concern among many angel groups, incubators and other event organizers around the country. This post is designed to provide practical tips to event organizers on how to structure their demo day, pitch event or angel group meeting event in light of new federal rules and the current regulatory landscape.

Starting today, September 23, 2013, the final rules published by the SEC in July go into effect and companies can use general solicitation (or advertising) in connection their securities offerings under the new Rule 506(c) of Regulation D of the Securities Act of 1933, adopted under Title II of the JOBS Act. However, the companies that choose to take advantage of general solicitation under the new rules will have to take steps they did not need to take in the past, including additional verification of accredited investor status. If the proposed rules go into effect, there are a further steps that would be imposed on companies choosing to generally solicit, including making advance filings of a Form D, filing with SEC the materials used in the general solicitation and including specific language (referred to as “legends”) in written solicitation materials.
Continue Reading Demo Days, Pitch Events and the New Reg D

CB Insights has published summary data regarding Q2 2013 corporate venture capital investing, showing CVC investment in 126 deals with total funding of US$1.7 billion. This marks a large increase over the past two quarters (both at US$1.4B) and an even larger increase year-over-year (with Q2 2012 at US$1.2B).  The five most active CVC investors listed are: Google Ventures, Intel Capital, Qualcomm Ventures, In-Q-Tel and Novartis Venture Funds.  A full report is available to paid subscribers.

CVC Q2 2013 - CB Insights sm.jpg
Continue Reading Corporate Venture Capital – Big Second Quarter

The Q1 2013 Halo Report report has been released by The Angel Resource Institute (ARI), Silicon Valley Bank (SVB) and CB Insights.  The report, available for download here, is a a national survey of angel group investment activity.

Highlights of the Q113 report include the following:

  • Round sizes trended up to a median of $680K per deal, a 5 quarter high;
  • Pre-money valuations remained at $2.5 million; and
  • Internet, healthcare and mobile deals attracted the most angel interest (72% of Q1 deals, obtaining 64% of the angel

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Continue Reading Angel Investment Trends: Q1 2013 Halo Report

CB Insights has published summary data regarding recent venture capital trends, together with a full report available to paid subscribers.  In terms of investments by VCs, the report indicates that US$7.0B was invested in 807 deals in the second quarter of 2013, representing a small increase in dollars invested (versus US$6.9B in first quarter) but a decrease in the number of deals of approximately 4%. The chart below shows quarterly dollars invested and deal volume going back to fourth quarter of 2010.  See the full release by CB Insights
Continue Reading Recent Venture Capital Trends: CB Insights Q2 2013 Data

Ban on General Solicitation Lifted with Respect to Accredited Investors

Today, the Securities and Exchange Commission (SEC) adopted new rules to lift the ban on general solicitation of funds or general advertising for certain private offerings of securities.  Once the rules become effective (60 days after publication in the Federal Register), provided that certain requirements are met, startups, fund managers and other companies will be able to utilize general advertising to offer to sell stock to “accredited investors” as defined in Rule 501 of Regulation D of the Securities Act of 1933 (typically wealthy individuals with liquid net worth in excess of $1 million or investment funds; see our discussion of the recently revised accredited investor standards here as well as information on the SEC’s site http://www.sec.gov/answers/accred.htm). Continue Reading SEC Issues Rules Lifting Ban on General Solicitation in Unregistered Fundraising

Interesting tax update courtesy of Bruce Thompson, a Senior Policy Advisor with DLA Piper.  He continues to see momentum for comprehensive tax reform and wrote the following summary of what that might mean for fund managers and partnerships:

“The Chairmen of the Tax Committees in the House and Senate—Rep. Dave Camp and Sen. Max Baucus—are committed to moving a major tax reform bill, and the House leadership has reserved HR 1 for the tax reform bill.Continue Reading Tax Reform Update: Impact on Private Equity, Hedge Funds, and Real Estate Partnerships