Venture Capital Term Sheet Negotiation — Part 8: Carve-Outs to Anti-Dilution Provisions and “Pay to Play” Provisions

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

In the prior seven posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions, discussed valuation, cap tables, and the price per share, discussed dividends on preferred stock, explained how liquidation preferences work, discussed the conversion rights and features of preferred stock, examined voting rights and investor protection provisions, and analyzed anti-dilution provisions. This post will discuss carve-outs to anti-dilution provisions that typically do not trigger dilution adjustments and also examine “pay to play” provisions. [Read more...]

SEC’s Reg. A+ Proposal Has the Potential to Actually Be Useful

On December 13, 2013, the SEC issued a proposed rule, which contains a draft of the long-awaited regulations implementing Section 401 of the Jumpstart Our Business Startups Act (JOBS Act), creating a new securities registration exemption commonly known as “Reg. A+.” [Read more...]

Venture Capital Term Sheet Negotiation — Part 7: Anti-dilution Provisions

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

 In the prior six posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions, discussed valuation, cap tables, and the price per share, discussed dividends on preferred stock, explained how liquidation preferences work, discussed the conversion rights and features of preferred stock, and examined voting rights and investor protection provisions. This post will discuss anti-dilution provisions. [Read more...]

SEC Provides Exemption from Broker-Dealer Registration Requirements for M&A Brokers

On January 31, 2014 (revised February 4, 2014), the SEC issued a no-action letter to a group of attorneys who requested assurance on an issue that has long been on the minds of securities lawyers: are people who facilitate the sale of a controlling interest in a business involving a transfer of stock — which the Supreme Court has held to be a sale of securities under federal securities laws — required to register as broker-dealers under the Securities Exchange Act of 1934, with all of the attendant expenses and obligations?

[Read more...]

Venture Capital Term Sheet Negotiation — Part 6: Voting Rights and Protective Provisions

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

In the prior five posts, we provided an introduction to negotiation of the term sheet and discussed binding and non-binding provisions, discussed valuation, cap tables, and the price per share, discussed dividends on preferred stock, explained how liquidation preferences work, and discussed the conversion rights and features of preferred stock.  This post will explain how voting rights are typically addressed in a venture capital transaction as well as describe customary investor protection provisions. [Read more...]