The Anatomy of a Unicorn – part 1

Everyone is aware of the dramatic growth and success attributed to companies such as Uber and Snapchat. However, not everyone may be aware of the structures used by those companies that allow for such development and progress. We did the heavy lifting for you and compared certificates of incorporation of five leading unicorns: Facebook, prior to its IPO, Palantir, Snapchat, Uber, and AirBnB. Our findings have revealed that key to the anatomy of the unicorns lay in similar founder preferences and down road economic protections for the companies’ investors. We will briefly discuss these founder and investor preferences, as found in the certificates of incorporation. Founder Preferences A unicorn tends to have a founder-friendly anatomy. This is accomplished by giving founders…

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DOWN-ROUND FINANCING

Why Down-Round Financing? Down-round financing occurs when stock of a company is sold at a lower price per share than it was sold during a previous financing. Although having to choose to do a down-round may not be an ideal outcome for a company, it is a tool that comes in handy when a company is seeking new investors in times of necessity, economic uncertainty or in a chilled fundraising environment. The legal aspects of a down-round can be challenging tactically and strategically for founders and investors. Structuring a Down-Round Regardless of a company’s reason for opting to sell stock at a lower price than in its previous financing rounds, once such a decision has been made, there are various…

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Flip Transaction 101

Many foreign founders and investors that are coming to the US are full of anxiety about moving their startup there. One of the main fears is the complexity of the flip transaction. Undeniably it is complicated process and no flip is the same, but there are some basic transaction issues and standards that you should keep in mind when planning a flip transaction. In this and the next series of posts, we wanted to share our experience and shed some light on the various flip “pain points” and “myths”. As you can imagine, this arcane area of the law requires an understanding of US and foreign venture capital/startup standards, US and foreign tax implications, and cross-border planning. At the end…

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Financing in the Valley and Europe – Big Differences

We keep running into clients asking what the big differences are between financing a startup in Silicon Valley and Europe. In this post we wanted to highlight a couple of these differences. Tranche You should be aware that many seed financings in Europe are structured as tranche deals. This means the VC releases money only if certain milestones or KPIs are satisfied, indicating that a seed round is essentially similar to multiple different financings. The VC exclusively determines whether the startup hit the milestone. European style tranche deals have a negative impact on company valuations and the dynamic between entrepreneur and VC. For example, tranche financing locks in previous valuations in a changing world. Practically speaking, each tranche is a…

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How Your Website Might be in Violation of the Children’s Online Protection Act [part 2]

In our previous post we have described what COPPA is and who is covered by its provisions. Today, we discuss what are the sanctions for non-compliance and what should be done to avoid them. How to Collect Children’s Information on Your Site/Online Service in Compliance with COPPA I have a website/I provide online services, what am I required to do? First and foremost, you need a clear and detailed privacy policy and place a link to the policy visibly on any page of the site where personal information is collected. Within the privacy policy, you need to include: any information you collect from children, the manner in which the information is used, and whether it is disclosed or shared with third parties.…

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How Your Website Might be in Violation of the Children’s Online Protection Act [part 1]

COPPA, the Children’s Online Privacy Protection Act is a federal regulation that covers the online collection of personal information entered by children under the age of 13. Under the Act, the Federal Trade Commission imposes certain requirements on website operators or online service providers (including mobile apps). The Act came into force in 2000 in order to address various online marketing techniques of the 1990s that were targeting children and collecting their data. As children under the age of 13 are especially vulnerable and do not fully understand the implications of revealing their personal information online, the Act was designed to protect such children’s privacy. Personal information is information that can individually identify a person and may include names and…

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Doing business in California? Learn how to authorize your business in the Golden State.

Nowadays, almost every founder knows about the benefits of incorporating in Delaware. However, our foreign clients often forget that the United States is a federation, which means that a separate certificate of authority to do business is required for every single state.  Consequently, as the Silicon Valley is the Mecca of pilot projects and almost all of the up-and-coming startups start and continue their business activity over there, it is important to remember a few basic formalities that need to be taken care of when you begin to conduct your business in California. First and foremost, am I doing business in California? The answer is yes if one of the following is true: You are actively engaged in any transaction…

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Data Protection and Data Transfer between United States and Europe

SaaS technology companies in Europe that have U.S. subsidiaries or clients in the U.S. frequently ask us about data protection and data transfer between the U.S. and Europe. This issue is governed specifically by the Safe Harbor Principles Program (the “Program”) on the basis of an agreement dated on March 15, 2000 between the U.S. Commerce Department and the Directorate General of the European Commission. The Program enables U.S. businesses with physical presence in the EU or EU businesses with physical presence in the U.S. (“Companies”) to transfer personal consumer data gathered in the EU territory to affiliated U.S. entities or third parties without violating article 25 of Directive 95/46/EC on the protection of individuals with regard to the processing…

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Watch out for venture capital syndicate SPV. Devil is in the details.

Problem Due to exploding valuations of tech companies, many venture capital investors are priced out of venture deals and cannot exercise their pro rata rights to participate in hot financing rounds. A recent solution to this problem has been syndication, among existing VC fund limited partners and new investors, via special purpose vehicle (SPV) structures. The SPV is created for just one purpose: pooling capital and taking a direct stake in a company by participating in a specified financing at a specific point of time. Pooling the VC’s resources with funds from other investors, both from inside and outside of the fund, allows VCs to maintain control and expand its financial interest. However, SPVs also pose certain business and legal…

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 Regulation A+ and start-up financing

The change. Loud pops were audible across the globe as countless bottles of champagne were uncorked in reaction to the announcement of the latest version of the Regulation A+. Adoption of the final rule by the SEC will provide emerging companies with a new, convenient path to raise substantial capital by offering their stock to large audiences. The Regulation A+ sets forth two tiers of offering processes: The “Tier 1” path, available to all companies conducting offerings of up to $20 million in a 12-month period, with not more than 30% in offers by selling security-holders that are affiliated with the company ($6 million in the case of a $20 million offering). The “Tier 2”, available in turn to all…

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