I volunteer at a couple of small business incubators and programs. I was sitting in on a mock pitch last week and giving some pointers on how the entrepreneur could polish their pitchdeck and overall presentation. I figured I’d put these up so people can take a look. The below are offered to any startup looking to raise money: Read more
Category: Financing Your Business
The SEC’s New Financial Sniffing Tools
Beginning this year, as described by SEC’s Chair Mary Jo White at the Chair Mary Jo White at the 41st Annual Securities Regulation Institute on January 27, 2014, described some of the new tools and systems the SEC would be using in 2014. Read more
Thoughts on the Twitter IPO
Last Thursday September 12, 2013, Twitter, from its official account, tweeted the following:
Intrastate Securities Offering Exemption
I wanted to blog on some of the lesser known and relied on securities exemptions. In certain situations they can be very helpful. One of these is the federal Intrastate Securities Offering Exemption. Simply, if you offer and sell in one state and one state only, and some other factors are met, the issuer is exempt from the federal registration requirement. Blue sky laws will still apply but some states have limited offering exemptions or other exemptions the issuer can rely on. Read more
SEC allows general solicitation and advertising in Rule 506 offerings
Yesterday, July 10th, under the provisions of the JOBS Act the SEC passed its Final Rules which amended Rule 506 and Rule 144A to lift the ban on general solicitation and advertising in offering and selling securities in a Rule 506 sale as long as all purchasers of the securities are accredited investors. Read more
Series A Participating Preferred Stock and Term Sheet Terms
If your startup just got a term sheet from an investor saying that they want to invest in your company and want to receive participating preferred stock with all of these other rights, you may be a bit overwhelmed. First off, congratulations on the proposed investment. Next, I’ll explain what all of those terms on the term sheet mean in this post starting with the participation component of participating preferred shares. Read more
JOBS Act Broker-Dealer Registration Exemption
The JOBS Act contained many provisions which were aimed at making the capital raising process easier, simpler and quicker from a host of angles. Many things promised in the JOBS Act will not come to fruition until the SEC promulgates the regulations on the specific topic. Some of these are equity crowdfunding, and the ability for issuers to use general solicitation in Rule 506 offerings.
One of the things contained in the JOBS Act which went into effect immediately, was an exemption for broker-dealer registration for persons or entities acting as brokers in certain 506 offerings. The SEC just confirmed this in a recent FAQ available here. I’ll give a quick overview below. Read more
FINRA “Know Your Client” and Suitability Rules
Last summer (2012) FINRA came out with new Know Your Client (“KYC”) and Suitability Rules, which replaced NYSE Rule 405 (the old KYC Rule) and NASD Rule 2310 (the old Suitability Rule) applicable to securities brokers/dealers and firms. The old rules were pretty unclear and the new rules help to clarify some points, but aren’t exactly as clear as they can be. FINRA will have some wiggle room in applying them.
Corporate Dual Class Share Structures
A dual class share structure is used in certain corporations where one or more classes are given all or a bulk of the voting rights and another class or class has the same economic interest in the company, but none of the voting rights. There can also be other rights that are given to one class instead of the other. This type of structure is used so that the existing Board of Directors and management of the corporation maintain their control of the company. It bcaeme common in news organizations (think the Economist Group, or the News Corporation a la Rupert Murdoch) so that the company could ostensibly keep its journalistic integrity and credibility or to stay true to its goals, without pesky shareholders muddying the waters.
A dual class share structure can serve desirable goals, such as shielding management and the board from short term views of dissident shareholders/analysts and hostile takeovers. This can be helpful, as the constant quarterly pressure to meet revenue expectations is a burden on many companies at the expense of long term sustainable growth. Management at companies with dual class structures argue that if shareholders aren’t happy with the structure, they are free to sell their shares and walk away. Not surprisingly, only companies that are rather a hot commodity in the market can really get away with using this structure.
New York’s Proposed Angel Investor Tax Credit
I’ve been following a bill proposed by New York Assembly member Kellner for a while now. It is an Angel Investor Tax Credit, available to investors in “qualifying businesses”. New York Bill No. A09958. Investors would receive a credit based on 25% of their investment, but the maximum investment you can obtain the credit for is capped at $250,000.
A qualifying business is one that:
- has gross revenue of less than $1M for the year before the investment;
- has no more than 20 full time employees (60% must reside in NY State);
- has operated in the State of NY for no more than seven consecutive years; and
- has received no more than $2M in investments (eligible for the credit from one or more angel investors)
To be eligible for the credit, the angel investor must be an accredited investor as defined in Rule 501 of Regulation D, except for those that either 1. control fifty percent or more of the company being invested in, or 2. any company whose normal business activities include venture capital investment.
First, the idea is noteworthy. A number of other states have passed similar credits to encourage angel investing. In Wisconsin, they passed such a credit and angel investments increase from $30M in 2005 to $180M in 2010. That’s staggering. I would prefer to see that the credit be available for seed/angel and venture capital companies, however. I think excluding them is a bad idea.
There are some critics of state angel investor tax credits. They are usually out of state VC funds and investors. They say that these types of credits would discourage interstate investing, such as Boston based VC’s investing in New York startups, and other such situations. I don’t know if those critiques are warranted, however, as out-of-state investors aren’t penalized in any way other than having more competition in New York State. As investors in-state are now sure they will at least recoup 25% of their investment in the year after they invest, as well as having the possibility for large returns (i.e. the home run) down the road.
The bill was referred to the ways and means committee in April and held for consideration there in June. There hasn’t been much action on it since then and won’t be until at least 2013. It is something to keep in mind however as any incentive that can be put on the table to get the economy moving, especially the startup community is a good idea. Access to capital is a big issue for many young companies.