Our colleague Kiran Lingam, in Atlanta, recently posted an article entitled “What is a Warrant?” As Kiran explains, warrants are very similar to stock options except that they are typically used for investors, strategic partners or other third parties and generaly have durations that are not tied to services. Kiran discusses various other aspects of warrants here.Continue Reading What is a Warrant?
Potential Changes to the Private Financing Landscape
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
What Makes Startups Succeed: Startup Genome Report Released
The “Startup Genome Report” released this week from seed accelerator blackbox collected data from 650+ startups to analyze factors that led to a company’s success or failure. I’m adding it to my recommended must-read list for early stage entrepreneurs. The authors (Max Marmer, Bjoern Lasse Hermann and Ron Berman) have summarized 14 indicators of success and have made the full report available for download here (in return for providing some basic information). It’s great to have a relatively large, current data set, rather than the more limited view we each get, in our roles as service providers to startups, founders, VCs, etc., from our companies, clients and portfolio investments. A few of the findings that struck me as interesting:
Continue Reading What Makes Startups Succeed: Startup Genome Report Released
‘Bad Actors’ May Limit Capital Raising Methods
CONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com
As expected per the Dodd-Frank Act, the SEC yesterday proposed to add “bad actor” exclusions to Regulation D Rule 506. Similar to Regulation D Rule 505, Regulation A, Regulation E and state limited offering exemptions, the amendment would disqualify offerings from the use of Rule 506 if the issuer or certain persons involved in the offering have, during the relevant look-back period, faced criminal, civil or administrative orders involving a variety of securities or other financial services industry matters. If the proposed rule is adopted, entrepreneurs and investors will need to be even more careful when recruiting executives and directors to join the company. The company will also want to consider doing additional diligence regarding individuals or companies assisting them with sales of securities, as well potential significant investors.Continue Reading ‘Bad Actors’ May Limit Capital Raising Methods
Incentive Stock Option Plans – ISOs vs. NQOs
CONTRIBUTED BY
Tyler Hollenbeck
tyler.hollenbeck@dlapiper.com
In my earlier post regarding considerations when creating your option plan, I briefly referenced the tax advantages, from the recipients’ perspective, of “incentive stock options” (ISOs), which can only be granted to employees, relative to so-called “nonqualified options” (NQOs), which can be granted to employees or consultants. Although there a number of web resources regarding the distinctions between ISOs and NQOs, these resources are often heavy with tax jargon and thus poorly understood. Accordingly, we have put together the below quick reference guide, which is intended only as a high-level summary of the current US federal tax consequences.Continue Reading Incentive Stock Option Plans – ISOs vs. NQOs
TechDwellers – Potential Home for Startups
Was looking at the details of TechDwellers, a space for startups that was recently launched by Seattle-area developer and venture capital firm The Benaroya Company. It’s located south of downtown Seattle in the Georgetown neighborhood, and boasts amenities including free high speed Internet, free parking, mail service, 24/7 access, and conference rooms/event spaces. Rates run $19.75/square foot/year for private office suites; $295/month for dedicated co-working desk space. Dan Shapiro, who founded and served as CEO of Ontela, the mobile imaging company that merged with Photobucket,
Continue Reading TechDwellers – Potential Home for Startups
Seattle Startup Sweet 16 – UW Business Plan Competition
Had the chance to be a judge for the UW Business Plan Competition yesterday. Some terrific companies. Out of 104 entries, the initial screening team narrowed it down to 38 companies. Those companies spent yesterday pitching to 280 “judges”, trying to convince each judge of the merits of their idea, their business plan and their ability to execute on their plan. As judges, we had $1,000 of pretend money to “invest” in the companies. The 16 companies who received the highest investment amounts now move on to the next round of the competition (plus two alternates). There was a wide variety among the contestants – with medical device ideas, e-commerce, cleantech and a couple of potato-related companies (no kidding).
Darien Brown, CEO of last year’s winner YongoPal, was in attendance and served as a judge (shown at right with Rob Salkowitz (left), writer and social technology consultant with MediaPlant, and this contributor, Megan Muir).
All of the advancing companies are listed after the break, together with a short description of their business plans.Continue Reading Seattle Startup Sweet 16 – UW Business Plan Competition
New Entrepreneurial Alliance Aims to Increase Numbers of Women in Tech
Earlier this week, in connection with a visit by President Obama to Facebook’s offices in Palo Alto to participate in a Facebook Townhall, the National Center for Women & Information Technology (NCWIT) announced a new startup alliance focused on women in tech – the Entrepreneurial Alliance. Ping Fu, founder of GeoMagic, writes about the event and the new alliance on the White House Office of Science and Technology Policy blog. The alliance aims to help startups hire more technical women, retain them, and
Continue Reading New Entrepreneurial Alliance Aims to Increase Numbers of Women in Tech
Updated NVCA model documents for VC investments
The National Venture Capital Association (NVCA) recently released their updated model legal documents for venture capital investments, which can be found here. The model documents were revised to include some new provisions to reflect recent Delaware Chancery Court decisions and the evolution of other terms.
Continue Reading Updated NVCA model documents for VC investments
Understanding VC Financings – Overview and Sample Term Sheet
Having a basic understanding of key venture capital terms and mechanics can be a great value to entrepreneurs looking to raise capital. In particular, it can be easy to get tripped up by the volume of foreign terminology and acronyms and the speed at which they are thrown around by venture capitalists and startup lawyers. This semantic minefield can put otherwise highly sophisticated entrepreneurs at a disadvantage in negotiating with venture capitalists and can cause them to enter into deals on unfavorable terms or force them to lean too heavily on their attorneys, increasing legal costs.
In this series, we have prepared a form of venture capital term sheet and will be providing commentary on the various deal points (i.e., what they mean, what is “market”, what to watch-out for, etc.).
We will be adding new posts with more detail regarding various key portions of these terms.
Readers may access a Word version of the sample term sheet here: Sample Series A Term Sheet.DOC
The National Venture Capital Association also has created its own form of term sheet.
Continue Reading Understanding VC Financings – Overview and Sample Term Sheet