Venture Capital

  • March 2019

    Delaware Supreme Court Upholds Dismissal of Trade Secrets Case Against PR Fund

    Amit Singh, a shareholder in Stradling’s Corporate and Securities practice group, authored an article for Preferred Returns Newsletter, the ABA’s Private Equity and Venture Capital Committee’s publication, regarding the Delaware Supreme Court’s recent dismissal of a trade secrets case against a private equity fund. brought suit against ABS Capital alleging the firm has misused confidential information by investing in its competitor.
  • March 2019

    Founder's Stock: Should You Subject It To Vesting Before A Venture Financing?

    When the founders of a company invest in their business - either with money or their intellectual property - they get in return what is known as “founder’s stock,” a form of stock in the company that comes with voting rights.

    Founder’s stock is often subject to a vesting schedule. That means if the founder leaves the company before the stock is fully vested, the company has the right to buy back unvested shares either at cost or at fair market value, whichever is lower.
  • March 2019

    Putting A Cap On Participating Preferred Stock

    Participating preferred stock - which entitles the investor to a preferential payment upon liquidation, as well as a share of the remaining liquidation proceeds with common stockholders - has some critics, namely those who say it allows the holder to double-dip into the company gains. A common way to limit the dilution of value caused by participating preferred stock is to set a cap on the participation amounts.
  • November 2018

    Capital Formation Deal Elusive as Senators Race Against Clock

    San Diego-based Amit Singh, a shareholder in the firm’s M&A and Emerging Growth practice groups, was quoted in the article, “Capital Formation Deal Elusive as Senators Race Against Clock,” published by Bloomberg Law – Securities Law News on November 30. The article covered the bipartisan package of capital formation bills, also known as the Jobs Act 3.0, that passed the House in July and is trying to make its way to the Senate floor.
  • October 2017

    SEC Publishes CDIs On Rules 147, 503, 504 and Reg A

    The Securities and Exchange Commission’s Division of Corporate Finance (Corp Fin) recently published its interpretation of various rules under the Securities Act with new Compliance and Disclosure Interpretations (CDIs). The CDIs reflect updates for the amendments to Rule 147, as well as Rules 503 and 504 of Regulation D. There were also a few CDIs related to Regulation A.
  • September 2017

    What Happens To A Trademark Licensee When The Licensor Is In Bankruptcy?

    When a business licenses a trademark, lawyers often warn that if the licensor files for bankruptcy, the licensee could be left without a right to use the mark. This was based on long-standing case law that held a debtor-licensor’s rejection of an IP licensing agreement cuts off the licensee’s right to use the IP. But recent appeals court decisions suggest licensees may be better protected than previously thought.
  • September 2017

    SEC Warns Investors About Dangers of SAFEs

    Earlier this month, the SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin entitled “Investor Bulletin: Be Cautious of SAFEs in Crowdfunding.” The bulletin was meant to warn and educate retail investors – an individual investor who buys and sells securities for their personal account – about the dangers of investing in startups through a Simple Agreement for Future Equity (SAFE).
  • September 2017

    SEC Finds Securities Laws Apply To Some Initial Coin Offerings

    Businesses are increasingly using Initial Coin Offerings to raise capital – and the U.S. Securities and Exchange Commission has taken an interest. The commission recently issued a report concluding the coins offered in a high-profile ICO last year were in fact securities. The report serves as a warning to those using distributed ledger or blockchain technology to facilitate the raising of capital about the need to comply with securities laws.
  • August 2017

    Registration Rights: What You Need To Know

    Under federal law, securities can only be offered or sold pursuant with a registration statement filed with the Securities and Exchange Commission, or in accordance with an applicable exemption from the registration requirements. Stock held by venture capital funds and other investors in portfolio companies is not typically registered initially. This is where registration rights come into play.
  • August 2017

    Interbake Can't Terminate Mrs. Fields' Cookie Deal Based On MAE Clause

    The Delaware Chancery Court in a recent decision held that Mrs. Fields Brands Inc. could force Interbake Foods LLC to honor an agreement to make Mrs. Fields-branded cookies for sale in certain retail store channels. In doing so, the court rejected Interbake’s argument that Mrs. Fields breached a “material adverse effect” clause and made false representations in the agreement.
  • August 2017

    Fraud Carveouts in M&A Transactions Must be Crafted Carefully to Avoid Ambiguity

    In a recent decision, the Delaware Chancery Court refused to throw out a lawsuit with post-closing claims for indemnification against the sellers of EMSI Holding Company, a medical information services business. The case involved allegations of fraudulent representations made by the company in the Stock Purchase Agreement. The court said “inelegant drafting” of the SPA created an ambiguity that prevented dismissal at this stage.
  • August 2017

    Are Non-Solicitation/No-Hire Agreements Enforceable In California?

    California has a strong public policy against agreements that prohibit employees from working for a competing company or starting up a competing business themselves. All blanket non-competes are automatically void under state law. Courts have also held agreements that prevent former employees from soliciting the company’s customers generally are not enforceable, unless they are limited to protecting the company's intellectual property rights.
  • July 2017

    What is a Seed Financing?

    Startups will often go through several rounds of financing before they are able to generate enough revenue to finance their operations. The earliest funding round, the seed stage, is a critical period when money is needed to develop the business and prove the new product or service works before it is sold to consumers.
  • July 2017

    When Can a Board Resignation be a Breach of Fiduciary Duties?

    The board of directors has an important role in a company, acting as representatives for stockholders while making decisions for the company and putting in place corporate management policies. The number of individuals on the board can vary, as the structure and powers of the board are determined by the corporation’s bylaws.
  • July 2017

    Do Invitations To 'Connect' On LinkedIn Violate Non-Solicitation Agreements?

    Employees often use personal accounts on social media websites like LinkedIn and Facebook to promote their work and share information about new jobs. While this might seem harmless, the growing use of these sites has raised legal questions about how these sorts of activities interact with an employee’s obligations under a non-compete or non-solicitation agreement.
  • July 2017

    Delaware Supreme Court Upholds Decision Permitting Energy Transfer To Exit Williams Merger

    The Delaware Supreme Court recently affirmed a lower court’s decision allowing Energy Transfer Equity to abandon a planned merger with Williams Cos. based on ETE’s failure to obtain a tax opinion from outside counsel, which was a contractual condition to closing. The decision sheds light on how Delaware courts will view parties’ obligation in an M&A agreement to use "reasonable best efforts" or "commercially reasonable efforts.”
  • July 2017

    SEC Study Highlights "Troubling Characteristics" Of OTC Stock

    The Division of Economic and Risk Analysis of the Securities and Exchange Commission recently published a study that looks at trends in the market for over-the-counter (OTC) stocks and could have important implications for investor protections.
  • June 2017

    Delaware Ruling Provides Cautionary Tale Against Favoring Preferred Stockholders

    In a recent decision, the Delaware Court of Chancery refused to dismiss a breach of fiduciary duty claim accusing a board of directors of improperly favoring the interest of the company’s controlling stockholder to the detriment of the long-term interests of its common stockholders.
  • June 2017

    Precision And Drafting: Keys To Ensure Your Agreement To Negotiate In Good Faith Will Be Enforceable

    Term sheets, letters of intent and other preliminary documents can be useful for parties in complex negotiations, allowing them to handle the major issues of the deal first and worry about the details later. Agreements that say the parties will negotiate a future agreement in good faith can be enforceable. But how to do you ensure that your agreement will be enforced and that you will have recourse if the other side doesn’t live up to its end of the deal?
  • June 2107

    Regulation A+ Outpaces Regulation A Activity, SEC White Paper Says

    The SEC recently released a white paper entitled “Regulation A+: What Do We Know So Far?,” which examined Regulation A+ offerings between June 19, 2015 (the date the exemption took effect) and October 31, 2016. The study found that during the examined time period prospective issuers publicly filed offering statements for 147 Regulation A+ offerings, seeking up to approximately $2.6 billion in financing. This outpaced the past rate of Regulation A activity.