Emerging Markets Law

Showing 13 posts from January 2014.

Indiegogo Raises $40 Million in Investor Funds

Posted In Crowdfunding

According to Variety, Indiegogo has announced that it has raised $40 million in investment funds.  The second-round funding was led by venture-capital firms Institutional Venture Partners and Kleiner Perkins Caufield & Byers.

The report indicated that this latest investment brings Indiegogo’s total investment to $56.5 million raised to date. Additional investors include Insight Venture Partners, MHS Capital, Metamorphic Ventures and FF Venture Capital.

Indiegogo claims users in 190 countries have launched 190,000 campaigns. The company was founded in January 2008.

Welcome New Bloggers

Posted In Industry

I'd like to welcome my colleagues, Mitzi Hill and Brian Nash to Emerging Markets Law Blog!

Mitzi was formerly Assistant General Counsel to Turner Broadcasting System, Inc. Mitzi's focus is on corporate technology, data security and media/entertainment.

Brian has been at Taylor English for several months and joined us from another firm. Brian's focus is on emerging growth companies.

Look for posts coming up from them later this week.

Intrastate Crowdfunding Bill in Alabama

Posted In Crowdfunding

Following the lead of several other states, state legislators in Alabama have proposed a bill to facilitate intrastate crowdfunding.  The bill passed the Alabama Senate this week in a unanimous vote.  The bill would permit Alabama companies to raise funds by selling securities exclusively to Alabama residents in a transaction that avoids registration under federal securities laws.

VC Firms Take an Interest in Crowdfunding

Posted In Crowdfunding

According to this report, well-heeled VC firms like Bain Capital are beginning to take an interest in crowdfunding.

Bain Capital manages more than $2 billion in venture funds and sometimes makes investments in start-ups.

VC firms have generally been skeptical of crowdfunding and have suggested, at times, that crowdfunding can get in the way of more sizeable professional investors.  Nevertheless the presence of VCs at crowdfunding forums suggests that they are giving crowdfunding a closer look.

Congressional Hearing on SEC Crowdfunding Rules

For an interesting glimpse into the way Congress thinks about crowdfunding, watch this video of the Committee on Small Business, Subcommittee on Investigations, Oversight and Regulations at a hearing titled, "SEC's Crowdfunding Proposal: Will it Work for Small Businesses?"

The Subcommittee met on Thursday January 16, 2014, at 10:00 A.M. to examine how the SEC's proposed rules under the JOBS Act of 2012 proposed rules are expected to affect both the crowdfunding model and small businesses seeking to use it as a source of capital

Integration Problems for Intrastate Crowdfunding

Posted In Crowdfunding

Jonathan Frutkin, writing in his blog at Cricca Funding, makes some interesting points about the problem of integration for intrastate crowdfund offerings.

As he notes, the SEC's rules will sometimes require that two separate offerings of securities be "integrated" for regulatory purposes.  This means that all of the offers and sales in both deals will be treated as part of one continuous offering, so that the entire offering will be required to satisfy all of the applicable rules.

For intrastate crowdfund offerings this can be a problem.  For example, if an issuer uses the Invest Georgia Exemption to raise $500,000 and subsequently uses Regulation D to raise an additional $1 million, the SEC might require these two offerings to be integrated into a single offering for regulatory analysis purposes.  If that happens, the offering will probably fail.  In this hypothetical, the combined $1.5 million offering will exceed the $1 million limit on aggregate offering size in the Invest Georgia Exemption (not to mention the residency requirement if any of the investors in the Regulation D offering are not Georgia residents).  On the federal side, if any of the IGE investors are not accredited investors, the Regulation D offering will fail and the entire integrated offering may fail to satisfy an exemption.

The SEC's rules make the integration problem especially difficult because they do not clearly define when an offering must be integrated.  The SEC provides a "safe harbor" for offerings that are conducted more than six months apart, but not all offerings conducted within six months of each other are integrated.  Integration is required when the two or more offerings are factually part of a single offering and, like the famous definition of "pornography", the SEC knows an integrated offering when it sees it.

Jonathan Frutkin correctly points out that the SEC has favored offerings under Section 4(a)(6) of the Securities Act (i.e., interstate crowdfunding under the JOBS Act) by stipulating that any offering of Section 4(a)(6) will not be integrated with another offering that is exempt from registration by virtue of another exemption.  How nice of them!

While that will make it much easier for issuers to do crowdfunding under Section 4(a)(6) (which is not possible today because the SEC's crowdfunding rules are not yet final) it puts at risk any offering conducted under a different exemption (like intrastate crowdfunding) because of the potential for integration.

All is not lost, however, because there are other ways to get some comfort that an intrastate offering won't be integrated with a subsequent exempted offering.

Maine Debates Crowdfunding

Posted In Crowdfunding

A bill has been introduced into the Maine State Legislature that would permit intrastate crowdfunding there for companies organized in the state and investors who reside in the state.  If adopted, Maine would become another in a small but growing group of states that have adopted intrastate crowdfunding provisions which the SEC's efforts to implement crowdfunding rules has dragged on.

As CrowdfundInsider notes, the bill is significant for at several reasons:

  • A prior draft had higher investment limits.  An earlier draft of the bill would have permitted annual investment caps of $2 million if the issuer had audited financials.  That would have been significant as it would have been an example of a state exemption with a higher cap than would be permitted under the JOBS Act.  A last-minute amendment, however, has pulled the cap back down to the $1 million per year limits recognized in the JOBS Act.
  • Per Investor Caps Will be Tied to CPI.  The bill contemplates an annual adjustment to the per investor cap that is linked to inflation.  This is a departure from the caps in the JOBS Act.
  • Issuers May Crowdfund Before They File.   An issuer can begin crowdfunding activity before it has competed its notice filing with the Commissioner of Securities.
  • Bill Proposed by Democrat.   The promoter of the bill, Senate President Justin Alfond, is a Democrat.  Previously, state legislation promoting crowdfunding was the province of Republicans.  Perhaps this marks the beginning of a bi-partisan recognition of the merits of crowdfunding.

ABA Business Law Section Deal Points Study

The ABA Business Law Section (M&A Committee) released its fourth annual private deal points study. The report is only available to BLS members, but some of the high points include:

  • The ABA study looked at a set of private company M&A transactions completed in 2013. The study set included a total of 136 deals ranging from $17.2 million to $4.7 billion in total transaction value.
  • The study looks at several key points in private M&A deals, including purchase price adjustments, earnouts, MAE representations, knowledge qualifiers, conditions to close and indemnification provisions.
  • 91% of the deals studied included a post-closing purchase price adjustment for changes in working capital but only 3% had a similar adjustment for changes in the purchased assets.
  • 91% of the deals studied, in their definition of “material adverse effect” excluding any adverse effect resulting from (a) changes in local, domestic, foreign or international economic conditions, (b) changes affecting generally the industries or markets in which the Target operates, (c) acts of war, sabotage or terrorism, military actions or the escalation thereof, (d) any changes in applicable laws or accounting rules or principles, including changes in GAAP, (e) any other action required by this Agreement or (f) the announcement of the Transactions.
  • Of those deals that have a “material adverse effect” carve-out like the one described above, roughly 91% of those deals have a “disproportionate effect” qualification (so that the impact will be an MAE if the event has a “disproportionate effect” on the Target).

The study includes a wealth of information on what is “market” in the private M&A market and I would recommend it to practitioners in this space.

Michigan Crowdfunding Bill

Posted In Crowdfunding

Over the winter holiday break the Governor of Michigan signed into law an intrastate crowdfunding bill for that state.

Michigan joins Georgia, Kansas and Wisconsin among states with intrastate crowdfunding exemptions.

When Do Start-ups Hire a General Counsel

Posted In Industry

Daniel Doktori, writing on the TechCrunch blog, outlines factors that many start-ups consider when deciding to hire an in-house general counsel. (Hat tip: Rachael Zichella). Doktori should know. As one of the founders of Harvard's Entrepreneurship Program, he's seen the inside of a lot of start-ups.

Continue reading When Do Start-ups Hire a General Counsel ›

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