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Structuring The Private Placement Or Venture Deal – Part 2

Back in 2013 I wrote a series of blogs about preparing for and then structuring a private placement or venture deal.  In today’s world where public markets are more difficult to access for smaller companies, it is a topic worth revisiting.  There are three primary aspects to the private placement or venture capital arena.  The first is getting dressed for the ball – i.e., preparing a company to be viewed and assessed by investors including the due diligence process; the second is determining valuation or deciding to avoid a determination through convertible instruments; and the third is structuring the deal itself.

In this two-part blog series I am discussing each of these aspects.  This first part addressed pre-deal considerations including valuation considerations and can be read HERE. This part two discusses structuring and documenting the deal.

Structuring The Deal

Although structuring a private placement and negotiating with a venture capital group are very different, the underlying mechanics of investments

Multiple Classes of Stock and the Public Company

In March 2017, Snap Inc. completed its IPO, selling only non-voting Class A common shares to the investing public and beginning an ongoing discussion of the viability and morality of multiple classes of stock in the public company setting. No other company has gone public with non-voting stock on a U.S. exchange.  Although Facebook and Alphabet have dual-class stock structures, shareholders still have voting rights, even though insiders hold substantial control with super-voting preferred stock.

Snap’s stock price was $10.79 on May 7, 2018, well below is IPO opening price of $17.00. Certainly the decline has a lot to do with the company’s floundering app, Snapchat, which famously lost $1.3 billion in value when reality star Kylie Jenner tweeted that she no longer used the app, but the negativity associated with the share structure has made it difficult to attract institutional investors, especially those with a history of activism. Although there was a net increase of $8.8 million in

Regulation A+ Continues To Grow

The new Regulation A/A+, which went into effect on June 19, 2015, is now three years old and continues to develop and gain market acceptance. In addition to ongoing guidance from the SEC, the experience of practitioners and the marketplace continue to develop in the area. Nine companies are now listed on national exchanges, having completed Regulation A+ IPO’s, and several more trade on OTC Markets. The NYSE even includes a page on its website related to Regulation A+ IPO’s.  As further discussed herein, most of the exchange traded companies have gone down in value from their IPO offering price, which I and other practitioners attribute to the lack of firm commitment offerings and the accompanying overallotment (greenshoe) option.

On March 15, 2018, the U.S. House of Representatives passed H.R. 4263, the Regulation A+ Improvement Act, increasing the Regulation A+ Tier 2 limit from $50 million to $75 million in a 12-month period.  In September 2017 the House

Structuring The Private Placement Investment- The Form Of The Investment

I recently blogged about how to determine valuation in a start-up or development stage entity for purposes of structuring a prepackaged private placement, or for negotiating the venture capital transaction.   Determining a valuation is instrumental to answering the overriding questions of what percentage of a company is being sold and at what price. However, once you determine the value, you must determine what financial instrument is being sold, or put another way, what will be the form of the investment.

The world of financial instruments can appear daunting and complicated, and no entity should attempt to structure a private offering or enter into an investment agreement without the advice of competent counsel.  However, an understanding of the basic components of financial instruments will increase the efficiency of counsel and greatly add to the comfort level of all parties involved.  This blog is limited to a discussion of the basic components of financial instruments that would be used to finance

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