Summary of the Proposed Amendments to Form ADV and Investment Advisers Act Rules

On May 20, 2015, the SEC issued proposed amendments to Form ADV and the Investment Advisers Act rules. In the release, the SEC proposed amendments to Form ADV that would require advisers to disclose additional information, such as information about separately managed account business, and allow private fund adviser entities operating a single advisory business to file one Form ADV. The release also contains proposed amendments to the Advisers Act books and records rule. [Read more…]

Frequently Asked Questions about Regulation A+

Back in March, I wrote about proposed revisions to Regulation A, commonly known as “Regulation A+”, which were designed to implement Section 401 of the Jumpstart Our Business Startups Act (JOBS Act). Since then, the SEC issued its final rule, which went into effect earlier in the month. Back in March, I had two main thoughts regarding the proposed rule. First, by proposing that Regulation A+ offerings preempt state registration requirements, the SEC had proposed a securities exemption that may actually prove useful and had a chance to be used in the real world (as opposed to the old Regulation A, which was rarely used). While this aspect of the proposed rule would be attractive to companies raising capital, it would also be controversial with state regulators and investor advocates, so I was concerned that in the final rule preemption of state laws would be rolled back. Second, I was concerned that companies that used Regulation A+ would likely be subject to ongoing Securities Exchange Act reporting (as a fully public company would be), which would reduce the attractiveness of the exemption. [Read more…]

Should Founders Subject Themselves to a Vesting Schedule?

When advising startup clients, I frequently recommend that they subject the shares issued to their founders (as well as those issued to any equity-compensated employees and contractors) to a vesting schedule. This conversation often leads the founders to look at me as if I had just asked them to grow a second head. It’s not hard to see why they would be somewhat confused as to why I recommend this course of action. As a technical matter, usually (but not always) my client is the startup itself and not the founders personally. And while I am always very clear about this with my clients, as I must be as an attorney, my clients’ founders often see me as their adviser, at least on some instinctual level. In addition, at the early stages of a startup, before any significant investors are involved, the founders have complete control over the company.  So they often ask why would they do something like subjecting their own shares to a vesting schedule that appears to be contrary to their own interests and why I would recommend that they take such an action. After all, they can only lose by subjecting their shares to a vesting schedule, right? [Read more…]

Venture Capital Term Sheet Negotiation — Part 21: No-Shop and Confidentiality Provisions

This post is the twenty-first and final in a series giving practical advice to startups with respect to understanding and negotiating a venture capital term sheet.

In the prior twenty posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions and discussed valuation, cap tables, and the price per sharedividends on preferred stockliquidation preferencesthe conversion rights and features of preferred stockvoting rights and investor protection provisionsanti-dilution provisionsanti-dilution carve-outs and “pay to play” provisionsredemption rightsregistration rights,  management and information rightspreemptive rightsdrag-along rights, representations and warranties, rights of first refusal and co-sale, closing conditions and expenses,non-competition and non-solicitation agreements, non-disclosure and developments agreements, board matters, and founders’ stock. In this final post, we will discuss no-shop and confidentiality provisions. [Read more…]

Venture Capital Term Sheet Negotiation — Part 20: Founders’ Stock

This post is the twentieth in a series giving practical advice to startups with respect to understanding and negotiating a venture capital term sheet.

In the prior nineteen posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions and discussed valuation, cap tables, and the price per sharedividends on preferred stockliquidation preferencesthe conversion rights and features of preferred stockvoting rights and investor protection provisionsanti-dilution provisionsanti-dilution carve-outs and “pay to play” provisionsredemption rightsregistration rights,  management and information rightspreemptive rightsdrag-along rights, representations and warranties, rights of first refusal and co-sale, closing conditions and expenses, non-competition and non-solicitation agreements, non-disclosure and developments agreements, and board matters. In this post, we will discuss founders’ stock.

[Read more…]