For Investors and Fund Managers

CB Insights recently released its Pacific Northwest Investment and Exit Report, which analyzed private company investment and exit activity over the past five years. The report collected data from all activity sources, including venture capital, private equity, strategic corporate investments, corporate venture investors, angels, incubators and accelerators. Here are a few highlights from the report:

  • Since 2009, the number of deals closed per year has increased 144% (195 deals in 2009 vs. 475 deals in 2013), with the total annual investment amount increasing 81% ($780 million dollars invested in


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Earlier this month the Cayman Islands passed new legislation revising its existing Exempted Limited Partnership Law.  The new legislation, the Exempted Limited Partnership Law 2014, replaces the existing legislation in its entirety and has a primary objective of providing Cayman Islands partnerships with more flexibility in a number of areas and generally bringing Cayman Islands law into closer conformity with existing laws in more familiar jursidictions such as Delaware.  This is welcome news to both private fund investors and sponsors.  A detailed review of the changes enacted by the new legislation will follow in a future post on The Venture Alley, but here is a quick summary of some of the more material changes contained in the new legislation:

  • Allows foreign limited partnerships to serve as general partners of Cayman Islands exempted limited partnerships (previously funds typically had to set up either a Cayman Islands exempted limited partnership or Cayman Islands exempted company to serve as the general partner);
  • No longer requires an exempted limited partnership’s register of limited partners to reflect contributions by and distributions to limited partners, but rather only the names and addresses of limited partners (which will serve to increase the privacy of limited partners who are invested in Cayman Island investment funds);
  • No longer requires the limited partnership agreement to be executed as a deed and witnessed in order to make valid a power of attorney granted therein (with this change being retroactive so as to validate any power of attorney granted prior to the passage of the new legislation); and
  • Simplifies the admission process for new limited partners in connection with a transfer of interest in an exempted limited partnership.
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Article prepared by and republished courtesy of our colleagues Joseph Langhirt and David Plewa; originally published here: http://www.dlapiper.com/en/us/insights/publications/2014/04/bitcoin-is-property-not-currency/.

The Internal Revenue Service has joined several other jurisdictions in publishing guidance regarding the income tax consequences of certain convertible virtual currency transactions.i IRS Notice 2014-21ii clarifies that existing general tax principles apply to transactions using convertible virtual currency and that such virtual currencies should be treated as “property” rather than “currency” for US federal income tax purposes.  Classification as property may affect the timing and character of income, gain or loss. While the immediate implications of the Notice are apparent, the mid-term and long-term consequences are still being considered.  The IRS has indicated that penalties may apply to taxpayers that have taken return positions that are inconsistent with its position in the Notice or that have failed to file the appropriate information returns.

Virtual currency, such as bitcoin, that is “convertible” (i.e., has an equivalent value in or acts as a substitute for “real currency”iii) and that is sold or exchanged or used to pay for goods or services in certain transactions has tax consequences that may result in a tax liability to the person disposing of such virtual currency and/or receiving such virtual currency.

In addition, such tax consequences may be immediate or deferred, and any tax imposed may be at varying rates, depending on the nature of the transaction and the type of person disposing of or receiving such virtual currency.

In the following paragraphs, we discuss the Notice and its immediate implications, and we point out some legal, factual and practical issues that the Notice raises.
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Bill Carleton has a good post regarding the recent comments from Keith Higgins, the Director of the Division of Corporation Finance, who spoke at the 2014 Angel Capital Association Summit.  Higgins discussed the SEC’s principles-based approach with respect to meeting the requirements of new Rule 506(c). 

Since the SEC’s adoption of new Rule 506(c) in September 2013 allowing general solicitation by issuing companies in certain circumstances, angel investors have been concerned about the accredited investor verification standards set forth in those new rules.  The debate has centered around what actions
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Compliments of our DLA Piper colleagues in the data protection and privacy practice, and co-editors Kate Lucente and Paul McCormack, here is the DLA Piper 2014 Data Protection Laws of the World Handbook.  This new online edition of the handbook offers a high-level snapshot of selected features of international laws as they currently stand in 72 jurisdictions across the world.  For example, here is a heat map that provides a visual representation of the privacy challenges faced in certain jurisdictions.

Here is a .pdf of the full 349-page handbook
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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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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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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:
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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.
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