Keith F. Higgins, the Director of the Division of Corporation Finance at the SEC, recently spoke at the 2014 Angel Capital Association Summit. His speech came in the midst of much JOBS Act rulemaking that I’ve blogged about frequently, and his remarks provide some useful insight into what the SEC is thinking about these days, although he includes the standard disclaimer that he’s speaking for himself and not the whole agency. In particular, I thought the following topics that he covered were worthy of note: [Read more…]
I’ve noted in past posts that the SEC tends to take a paternalistic attitude toward the notion of non-accredited investors participating in private offerings, with income and net worth enshrined in the applicable rules as a rough proxy for sophistication and ability to take investment risk. However, the risk to non-wealthy investors of being wiped out is real. Needless to say, placing one’s entire nest egg in one basket, particularly a high-risk/high-reward-type of an investment, is a recipe for disaster. The JOBS Act provisions on crowdfunding, and the SEC’s proposed rules enacting those provisions, seek to address this issue through limitations on the amount that can be invested in any one offering and all crowdfunded investments together by those with modest income and net worth. [Read more…]
The Private Placement Memorandum (PPM) is the disclosure document used in private securities offerings, providing to prospective investors detailed information about the company’s business plan, terms of the offering, risk factors, management, financial history and/or projections, etc., to enable the investors to make an informed decision on whether to participate in the offering. For Regulation D offerings, Rule 502 requires that a PPM be provided to any non-accredited investor and goes on to recommend that the same PPM also be provided to the accredited investors. Therefore, in an offering that is made solely to accredited investors, as is often the case, a PPM is not required. So the question is whether, in such cases, a PPM should nevertheless be prepared and provided.
Continuing its implementation of rules mandated by the JOBS Act, the SEC has proposed rules for the expansion of offerings under Regulation A. Here is the SEC’s handy press release and fact sheet. Commentators have dubbed the new rules “Regulation A+” because of the greatly increased maximum offering amount under the new rules (and not as a reference to the average grade at Harvard). As with the recent crowdfunding proposal, these rules are not effective until after the SEC issues final rules following a comment period. [Read more…]
I focused in my last post about breaking up M&A transactions into stages, where a potential acquirer can start by purchasing a minority interest in a company, followed by a purchase of the remainder of the company later. The same approach of breaking a transaction up into bite-sized pieces can be taken with investments that are never intended to be full acquisitions of a company. Equity financing transactions can be structured as a multi-stage process, e.g., an investor purchases a 10% interest and then is obligated to purchase another 10% in the future if the company hits a certain milestone.
But I wanted to focus here on the very common “bridge loan” transaction. The scenario here is that the company wants to (or needs to) put off a significant financing transaction for some period of time – perhaps because it has to develop its business in some manner that would be required to attract the investment – but it needs temporary funds to allow it to do that developing. Rather than negotiating a full-fledged VC-style equity investment, the solution is to structure a bridge investment as a convertible note. The note will automatically convert into equity when the company completes its equity offering over a threshold amount. A selective list of issues to think about in structuring the bridge loan transaction: