Photo of John Hempill

In the beginning of February 2020, COVID-19 seemed to have little to no impact on venture capital investing in the United States.  Fast forward a few weeks later: concerns quickly spread over the entire industry about the effects of the COVID-19 pandemic on venture investing, its impact on startup companies and the U.S. economy in general.  Emerging growth companies instantly went into “conserve cash mode” and applied for PPP loans.
Continue Reading 2020, 2021 and the EC/VC Industry – Review of the Past Year and Predictions for the Current One

As the COVID-19 pandemic spread from Asia to the rest of the world at the beginning of 2020, global venture capital (VC) funding dropped dramatically—by about 20% since December 2019 according to Startup Genome.[1]  While the longer-term effects of the pandemic on startups’ ability to raise money cannot be fully grasped yet, it is likely that this downward trend will continue.  Furthermore, though many venture rounds in Q1 2020 benefitted from optimistic beliefs in a V-shaped economic recovery, deals that get done over the next several quarters may reflect pressures resulting from what most now predict to be a longer and more painful path.
Continue Reading Investments in Emerging Growth Companies Post-COVID-19

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), was promoted as a new piece of legislation creating groundbreaking additional pathways to funding for companies, which was especially highlighted by the 2008 financial crisis.  Two provisions in the JOBS Act, created “Regulation” crowdfunding and “Reg A+” offerings, were particularly focused on early stage and emerging growth companies’ financing needs.
Continue Reading Issues Regarding SEC Proposal to Expand Private Offering Exemptions

Two amendments have been proposed to the Delaware General Corporation Law (the “DGCL”) to permit corporate record keeping utilizing blockchain databases (the “Blockchain Amendments”). Specifically, “stock ledger” is to be defined in Section 219 of the DGCL to include ledgers “administered by or on behalf of the corporation,” in order to permit a record keeping system utilizing blockchain databases. Section 224 of the DGCL is to be similarly amended regarding all corporate records, and provide that such records may be kept on “one or more electronic networks or databases (including one or more distributed electronic networks or databases).”
Continue Reading The “Blockchain Amendments” to the Delaware General Corporation Law

On October 26, 2016, the Securities and Exchange Commission amended its existing safe harbor rule for intrastate investing, Rule 147, and added a new intrastate safe harbor, Rule 147A in an effort to reflect the realities of modern business. While these changes could provide a useful tool for small businesses, the SEC’s evolving stance on nationwide crowdfunding and lack of coordination with existing state law may hinder their usefulness to any business beyond those looking for local or niche investors.

Continue Reading Changes In Intrastate Crowdfunding Rules: Will They Make A Difference?

Regulation A+, which became effective on March 25, 2015, permits the offering of up to $50,000,000 in securities in any twelve-month period, subject to the certain requirements (a “Tier 2 Offering”).  Tier 2 Offerings are not subject to state securities laws registration and qualification requirements due to federal preemption provided by Section 18 of the National Securities Market Improvement Act of 1996 (NSMIA) because such securities are offered or sold to a “qualified purchaser” (as defined by the  Commission).
Continue Reading SEC Prevails in Regulation A+ Litigation

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, or FAST Act. Although primarily a transportation bill, the FAST Act also made changes to the federal securities laws as described below. Overall, the FAST Act’s changes to the securities laws will help facilitate raising capital.
Continue Reading FAST Act Speeds-Up Raising Capital

On October 30, 2015, the Securities and Exchange Commission adopted the final rules for “Regulation Crowdfunding” nearly two years after issuing its proposed rules and over three years after the enactment of Title III of the JOBS Act. Since the publication of those final rules, many commentators have blogged about those rules, and many have not been kind, criticizing the final rules as, among other things, unusable by the very start up issuers for which they were supposed to be “the solution.” Lost in the shuffle that day was the announcement by the SEC of proposed changes to two other exemptions from the registration requirements of the Securities Act of 1933: Rule 147 and Rule 504.  Rule 147 is a “safe harbor” provision for intrastate securities offerings exempted from registration by Section 3(a)(11) of the Securities Act, while Rule 504 is one of the four exemptions provided by Regulation D. Both of these rules have been seldom used in the modern era. Rule 147 has proven to have too many requirements and restrictions to be useful, especially in the modern age of the internet.  Rule 504 has proven not to be attractive to issuers privately placing their securities, who have instead almost universally chosen to rely on Rule 506(b).With its proposed changes to these two rules, the SEC has taken positive steps toward creating more useful exemptions and alternatives to Rule 506(b) offerings.
Continue Reading Far From The Madding Crowdfunding: A look at the SEC’s proposed changes to Rule 147 and Rule 504

With a total of 284 U.S. operating company IPOs in 2014, the U.S. securities market might appear to be on an upswing – after all, this was its biggest year since the dot com era ended in 2000.  Nonetheless, this figure does not compare with what it should be given our annual 3% GDP growth rate, which would have required 520 IPOs if the dot com era is used as the baseline.  Furthermore, the U.S. is no longer the world leader in IPOs – it has fallen to #2 in large IPOs and #12 in small IPOs, and has experienced a decrease to only 5,000 listed companies from 9,000 in 1997.  The shrinking U.S. IPO market brings associated potential problems: lackluster employment opportunities, decreased innovation and failure of the U.S. to sustain itself as a market leader.
Continue Reading A Change for the Better? The Arguments For and Against a Venture Exchange

On March 25, 2015, the Securities and Exchange Commission adopted final rules amending its Regulation A, i.e., the so-called “Regulation A+ Rules”. Regulation A has been a little used provision in the securities laws due to, among other shortcomings, the limit on offering size to $5 million in any 12-month period and the requirement that these offerings be cleared not just by the SEC but any state in which an issuer was planning to offer and sell the securities. From 2012 to 2014, there were only 26 Regulation A offerings. Instead, private companies have relied heavily on Rule 506 of Regulation D, which offers no cap on the amount that can be raised and federal preemption of state securities laws.
Continue Reading S.E.C. Adopts Final Rules Amending Regulation A

In “Bringing the Individual Accredited Investor Definition into the 21st Century,” which was posted on December 18th of last year, it was suggested that there might be certain common venture capital transactional structures that  provide protections that could justify eliminating the additional disclosures and limitations required when non-accredited investors participate in an offering under Regulation D.  If any of these structures were utilized, all securities issued in the transaction would be exempt from the registration requirements of the Securities Act. This is not a concept foreign to the Securities Act.  For example, Section 3(a)(9) provides an exemption for “any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.” The following are three additional types of transactional structures that could arguably sufficiently protect non-accredited investors and thus justify exempting the securities issued pursuant thereto from the registration requirements of the Securities Act.
Continue Reading Toward a Transactional Exemption for Emerging Company Investments