Finance (Venture Capital)

 

• Experience with all issues related to venture capital (VC) investing.

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• Analysis, negotiation and review of VC term sheets for entrepreneurs and founders.

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• Drafting and negotiation of term sheets for VC firms and investors.

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• Legal support for the valuation of legal entity to be funded with VC capital, based on factors such as: any current revenues being generated by the enterprise, if it is an ongoing business, or the current progress in developing a viable product, if it is not an ongoing business; chances for the success of the enterprise, based on current and projected economic and market conditions; contributions by the founders to the proposed enterprise (such as some new and proprietary manufacturing process, operating methodology or technology); founders’ experience in the applicable market, and past successes, if any; market excitement generated by the introduction of the product or service created by the founders; market need for the product or service proposed by the founders; proposed business model of the founders; relative size of the market in which the proposed legal entity will be operating; valuations of comparable currently-operating companies, if any.

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• Drafting and negotiation of all agreements, documents forms and templates required to complete the financing transaction, such as: convertible preferred stock agreement; promissory notes; simple agreement for future equity (SAFE); keep it simple security (KISS).

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• Drafting and negotiation of all agreements, documents forms and templates required to facilitate the vesting of founder stock in a manner so as to create incentives for the founders to stay with the enterprise for a schedule of at least some reasonable period of time after startup, such as: acceleration mechanisms for performance rewards to remaining founders if one or more founders leaves voluntarily or is terminated by the other founders for cause; an average 48-month vesting period, with performance bonuses; compensation for time served prior to startup; ‘double-trigger” acceleration, in which vesting accelerates if the enterprise is acquired and then the buyer terminates one or more founders’ employment without cause after the acquisition.

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• Consultation regarding proposed board members and all other board issues, such as observer rights for the VC investors (granting such VC investors the right to attend board meetings in a non-voting capacity and to receive financial and other information provided to board members at board meetings).

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• Drafting and negotiating the liquidation preference (the amount of money to which a VC preferred investor will be entitled due to a liquidation event, such as the voluntary or involuntary sale of the company, before any proceeds from such liquidation event are apportioned to the common stock).

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• Drafting and negotiating any participating preferred agreement (a generally rare situation in which, upon a liquidation event, the VC preferred investor will first receive the liquidation preference, and then will receive a proportionate share of any remaining distribution proceeds, based on the relative ownership proportion between the common and preferred shares).

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• Drafting and negotiating any protective provisions for the VC investors, such as veto rights or anti-dilution mechanisms, that will give VC investors who may be holding a minority stake in the enterprise the right to protect their interest against negligent or oppressive actions (such as: amendments to the bylaws or charter of the enterprise by the founders obviously antagonistic to the VC investors; creation by the founders of new series of stock to increase their voting majority past the point where the VC investors could object; incurring unnecessary debt by the founders; packing the board by the founders with many new board members obviously favorable to the founders; payment of disproportionate or unjustifiable dividends; sudden acquisition or redemption by the founders of large blocks of shares from employees; surprise sale or liquidation of the enterprise by the founders) by blocking or vetoing any actions the entrepreneurs or founders may take that might diminish or even eliminate altogether the minimum value of the VC investors’ minority share, upon which minimum value they had relied when making their decision to invest in the enterprise, in order to return a profit.

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• Drafting and negotiation of further rights specifically favorable to VC investors, such as: co-sale rights (in which the VC investors will receive a preferential rate from the proceeds in the event the founders wish to sell their shares ahead of schedule or to some entity that must be approved by the VC investors); confidentiality (essentially placing a gag order on the founders regarding all aspects of the transaction, without the expressed prior written consent of the VC firm to release particular details about the transaction); cooperation (by the founders in all due diligence activities by the VC firm prior to the consummation of the transaction, with parallel indemnifications and representations by the founders to the VC firm, in the event of any lack of cooperation or misrepresentations by the founders); dispute resolution (requiring a dispute resolution protocol favorable to the VC firm, in a venue and with the governing law favorable to the VC firm); drag-along rights (in which a shareholder majority may have the right to require a shareholder minority to participate in a justifiable business action, even if the shareholder minority does not wish to participate); exclusivity rights (requiring the founders to inform the VC firm in writing of any unsolicited offers to invest in or purchase the enterprise, and to provide the VC firm with copies of all the documentation received by the founders pursuant to such unsolicited offers); favorable stock options; information transparency regarding all aspects of enterprise operations (perhaps including the right for the VC investors to conduct surprise audits, at their own expense, with reimbursement to them from the enterprise only if such a surprise audit may uncover purposeful wrongdoing by the founders); insurance requirements (perhaps covering key personnel of the enterprise, but including the management of the VC firm); invention assignment agreements (favorable to the VC firm, essentially preventing the founders from suddenly revealing some previously-undisclosed asset, invention, method of operation or service that the founders would then use as the basis of a new enterprise to compete with the enterprise funded by the VC firm); no shop provisions (preventing the founders from attempting to initiate further investments in the enterprise without the expressed prior consent of the VC firm); participation rights in future financings; redemption rights (perhaps triggered by milestone dates or some performance criteria for the enterprise); registration rights (allowing the VC firm to require the enterprise to register its shares with the SEC so that the VC firm could sell its shares at a higher rate, differentiated into demand rights – requiring the enterprise to register its shares based on some predetermined criteria – or piggyback rights – which allow shareholders to include some or all their shares in any registration statement); reimbursement (of all reasonable expenses incurred by the VC firm to consummated the transaction, up to a specified amount,once the enterprise commences operations); rights of first refusal (perhaps in the event the founders wish to sell the enterprise prior to an allowed milestone date, or to a hostile takeover group).

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