investors - VC and Angels

Contributed by our colleague Mark Radcliffe

2014 was a great year for startups seeking funding.  Two of the leading reporting companies, PitchBook and CB Insights, report similar trends (both of these reports focus on funding by traditional financial venture capitalists and corporate venture capitalists, but the numbers differ because PitchBook also includes some angel investments). The key points are:

1.  Significant Increase in the Amount of Funding:  The funding in 2014 increased dramatically from 2013: according to PitchBook,  funding increased almost $20 billion from $39.4 billion to $59 billion
Continue Reading Three Trends in 2014 Venture Capital Funding

Courtesy of Itai Nevo, a partner in DLA Piper’s Boston office, below is an informal survey of current trends regarding single vs. double trigger stock option acceleration from DLA Piper’s Atlanta, Boston, Chicago, DC, Northern and Southern California, Reston, Seattle and Texas offices.

(1)  The common denominator (with some exceptions described below) was a double trigger approach – typically 12 months, sometimes 18 months, following a sale event. This was the most common approach (as opposed to single trigger) both geographically (East vs. West Coast) and across stages of company maturity (i.e., seed  stage through VC-backed).

(2)  For the most part (see item 3 below), acceleration terms were offered only to senior management and on an agreement-basis rather than at the option plan level. When offered, full acceleration was the most common approach with a recent slight trend toward 50-75% acceleration of unvested shares at the time of termination.

(3)  Rank and file acceleration was not overly common. Some Northern California- and Boston-based partners reported seeing an emerging trend in affording vesting acceleration (generally double trigger) for rank and file employees. If acceleration is in fact offered, rank and file participants often got six to12 months or some partial percentage.Continue Reading Trends re Stock Option Acceleration: Single vs. Double Trigger

A few months ago we posted an article entitled “Financing Your Startup: How to Sell Stock without Going to Jail.” Among other things, the post described a series of legal restrictions associated with raising funds legally. Although there have been many widely publicized calls to relax these restrictions over the past decade (such as this 2006 Report of the SEC’s Advisory Committee on Smaller Public Companies or this 2007 SEC Release), most of these efforts fizzled with no action. However, in connection with the Dodd-Frank Act reforms, there has recently been a notable resurgence of pressure to simplify rules regarding private company capital raising. This pressure has come from a variety of sources, most notably Congressman Darrell Issa (R-CA), Chairman of the House Oversight and Government Reform Committee. Recently, SEC Chairman Mary L. Schapiro, and Director of the SEC’s Division of Corporation Finance Meredith Cross, testified before the House Oversight and Government Reform Committee to discuss some of these topics. A transcript of their testimony can be found here.

The two issues that appear to be center stage are (1) relaxing the general solicitation prohibitions in private offerings and (2) increasing the 500-shareholder threshold for triggering reporting obligations under the Securities Exchange Act of 1934, as amended (the “1934 Act”).Continue Reading Potential Changes to the Private Financing Landscape

This post is part two of a two-part series and will focus on shareholder controls.  Here is our prior post that focused on board of director controls.

Shareholder Controls:  There are a number of mechanisms available to increase the control of one or more groups of shareholders, such as the founders or all holders of a certain series of stock (e.g., Series A Preferred shareholders).  The most common ways are set forth below.  Note that they are often used in combination.Continue Reading Financing Your Startup: Understanding Control and Voting Issues (Part 2, Shareholder Controls)

When negotiating a term sheet for an angel or venture capital investment, there is often tension between the founders and investors with respect to allocation of control over various future company actions and decisions.  There are many different ways for a founder to retain, or a new investor to obtain, control over a startup.  Below is a brief, but not exhaustive, outline of some of the most typical control features found in early stage financings.
Continue Reading Financing Your Startup: Understanding Control and Voting Issues (Part 1, Board Controls)

(in collaboration with Megan Muir)

We recently guest posted the below article on TechFlash.  At the end of this post, we have added some supplemental information in an effort to respond to a few questions we received from TechFlash readers.

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As the founder of a startup, one of the first issues you need to address is how to finance your company’s operations.  If you are lucky enough to be able to fund your startup out-of-pocket, or through generous family members, congratulations.  You can probably skip the rest of this post and get back to building your business.  However, if you are like most founders, you won’t be able to self-fund your company entirely and your revenues won’t exist yet, or won’t be adequate to grow the company.  In some instances you may be able to obtain government grants or if you have some type of hard asset or significant accounts receivable to use as collateral, you may be able to borrow from a bank.

This post addresses a common method for financing the growth of a tech startup – by selling stock in your company.  What type of investor is right for your company – family and friends, angel investors, venture capitalists, or some combination of these – is something you will want to consider carefully.  We’ll save that discussion for another post as it’s an interesting topic on its own.Continue Reading Financing Your Startup: How to Sell Stock without Going to Jail

Ledbetter, Andrew D._photo_3659.jpgCONTRIBUTED BY
Andrew Ledbetter

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’

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

**UPDATED December 18, 2010 at 9:00 a.m.** The proposed legislation referenced below that would extend the 100% tax for capital gains (and alternative minimum tax) on QSBS was signed by the President on Friday.  Accordingly, the 100% QSBS tax break now runs through the end of 2011.  Here is a good summary of the various items included in the Tax Relief Act of 2010.
Continue Reading ** UPDATED** ‘Qualified Small Business Stock’ tax break – Extended through 2011