Blog — Beyond the Virtual Law Firm
Category: Venture Capital & Angel Financing
ISDA March 2012 Supplement and Protocol
ISDA has announced the launch of the 2012 US Municipal Reference Entity CDS Protocol. The purpose of the Protocol is to make similar changes to US Municipal CDS transactions (“Muni CDS”) as were made to corporate and sovereign CDS by the 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol. The Protocol is open for adherence and closes at 5pm New York time on Monday April 2, 2012.
SEC Amends Rules on Advisory Performance Fee Charges
On February 15, 2012, the U.S. Securities and Exchange Commission adopted amendments to Rule 205-3 of the Investment Advisers Act of 1940 consisting of: (i) changes to the dollar amount thresholds which determine whether an individual or company is a “qualified client;” (ii) changes to the net worth test in the definition of “qualified client;” (iii) inclusion of two transition, or “grandfather,” provisions which permit investment advisers and clients to continue operating under advisory contracts entered into before adoption of these amendments.
Does Pandora’s Lukewarm IPO Foreshadow Groupon’s Fate?
After filing for an IPO in Februrary, 2011, streaming music company Pandora went public on June 15, 2011 with little fanfare. In contrast to LinkedIn which went public last month with a soaring valuation, Pandora’s valuation has been largely as expected. Off the heels of LinkedIn, this could be seen as disappointing.
Microsoft Buys Skype, Obtains FTC Approval
Microsoft made the headlines on May 10, 2011, when it acquired videoconferencing giant Skype for a reported $ 8.5 billion. Following the antitrust procedure of the Hart-Scott-Rodino Act, the companies filed a pre-acquisition notification to the various government bodies, required before the deal can be finalized.
Trading on the Secondary Market
In recent years, the secondary market for stocks – a platform through which investors can buy and trade shares of private companies – has grown exponentially in size and use. This year, transactions on the online platforms of SharesPost and SecondMarket alone have totaled over $ 4.6 billion, and are projected to exceed $ 6.9 billion next year. This does not include the much larger volume of trading by traditional broker-dealers and financial advisers, or other online platforms.
Interpreting the Startup Visa Act
On March 14, 2011, Senators John Kerry and Richard Lugar introduced a bill titled the Startup Visa Act of 2011, which is an updated version of a 2010 bill. If passed, the act would provide temporary work visas to various kinds of foreign workers if certain financial benchmarks are met.
Venture Capital Survey of the Silicon Valley in 2009 Third Quarter
Dow Jones VentureSource is one of the most popular nationwide venture capital date reports in the United States. VentureSources published its latest data on the development of venture capital investments in the third quarter of 2009. Below are some overviews observed by VentureSource.
- With 616 venture deals and $5.1 billion invested, Q3 is a 6% drop over Q2;
- IT investment barely outpaces health care;
- Web2.0 investments surpassed the software sector for first time on record;
- Medical device investments nearly match biopharmaceuticals;
- Corporations investing instead of acquiring, commitments to VC-backed firms surpasses 2008 total;
- $5 million median deal size on par with Q1&Q2, but still lowest since 1999.
It is undeniable that the investments and fundraising by venture capitalists remained at low levels in 3Q’2009, but there is room for optimism as the economy is picking up slowly and Nasdaq continued to improve. In addition, with regard to the largest U.S. deals overall in 3Q’2009, eight deals are conducted in California, such as Facebook, Tesla Motors, and Pacific Biosciences of California, etc.
What do entrepreneurs give up to VCs?
Lots of young entrepreneurs in Silicon Valley these days hope to begin their business, let people know their companies, and furthermore, draw the attention of venture capitalists, who will devote money to their new enterprise.
Something that an entrepreneur must keep in mind is something that he must give up to VCs when getting money from them – most commonly stock of the new company. Generally, a venture capitalist asks for “preferred stock” from the entrepreneurs; the owner of preferred stock enjoys shareholder rights superior to the shareholders of common shares.
Most types of preferred stock are designed to convert into common stock (for example, one share of preferred stock converts into five shares of common stock), either at the discretion of the investors (voluntary conversion) or when some preset threshold is reached (automatic conversion, for example, in a public offering scenario). Thus, the conversion condition, time of conversion (voluntary or involuntary), and the conversion rate, is always one of the most fiercely argued clauses in the investment negotiations between VCs and entrepreneurs.
Of course, another major issue to consider before seeking venture capital is the loss of control of your company. When VCs invest, they want to make sure their investments are secure, so they often require a seat on the board of directors and certain voting rights. This means an entrepreneur effectively has a new boss. This can be a good thing since VCs often add experience and credibility to the company. However, this often causes power struggles between the entrepreneur and the venture capitalists.