In the world of venture capital, there are certain investor rights that ensure the smooth execution of exit transactions.  The primary such mechanism is the drag-along provision, under which one group of stockholders agrees in advance to sell or vote their shares in a sale of the company approved by another group of stockholders and/or by the board.  Drag-along provisions often include a covenant by the drag-along shareholders not to sue over a drag-along sale, often including waivers of claims for breach of fiduciary duties.  But are fiduciary duties of directors too important to allow them to be waived by stockholders?  A recent Delaware Chancery Court decision puts guard rails on such waivers.Continue Reading Too Big to Waive?  Enforceability of Drag-Along Covenants Not-to-Sue

A major theme of this Blog has always been ongoing legislative, regulatory and market initiatives to reform capital markets by targeting unreasonable or outdated impediments to capital formation to make it easier for early-stage companies to raise capital.  These impediments are not always obvious or direct.  One such indirect impediment has been the venture capital adviser exemption under the Investment Advisors Act of 1940, the eligibility requirements of which disincentivize VC investment in secondary transactions and in other VC funds, thereby unnecessarily hampering liquidity in the innovation ecosystem.  If a new piece of proposed legislation passed by the House Financial Services Committee becomes law, however, this impediment will be eliminated.Continue Reading Proposed Reform of Venture Capital Fund Advisor Exemption Will Boost Startup Investment and Founder Liquidity

The collapse of Silicon Valley Bank will have enormous repercussions for startups and VCs in ways seen and unseen.  As for the unseen, SVB had deep relationships among the various players in the venture ecosystem.  Founders and investors established banking relationships with SVB in part because of the opportunities SVB provided to network within the space.  It will be difficult for other lenders who don’t have these deep relationships to replace SVB in this capacity and fill this valuable role.Continue Reading Bumpy Ride Ahead for Startups After Silicon Valley Bank Crash

Two startups with competing, equally compelling technologies at the same stage of development are pitching venture capital investors for Series A funding.  One startup is led by a serial entrepreneur founder, the other by a novice.  Assume each will get funded.  In all likelihood, the deal will happen quicker and the amount funded and pre-money

2021 was a spectacular year for the American venture capital ecosystem, with VC investments, fundraising and exits all setting new highs.  That according to the latest PitchBook-NVCA Venture Monitor, the self-described definitive review of the U.S. venture capital ecosystem.  Nevertheless, it is difficult to predict how 2022 will turn out for the VC industry,

This past June, autonomous vehicle technology startup Zoox agreed to be acquired by Amazon for a whopping $1.3 billion.  Time for the common stockholders to pop the champagne, right?  Not exactly, according to a complaint filed in the Delaware Court of Chancery by two common stockholders.  Although many details have been redacted from the public

It’s no shocker that the Coronavirus pandemic has slowed down venture capital investment dramatically, with 2020 now on pace to be well below the high levels of the past couple of years.  According to Pitchbook, VC deal flow through June 28 fell to just 4,675 funding rounds as compared with 6,357 in the first

The corporate spectacle better known as The We Company IPO officially and mercifully came to an end September 30 when The We Company (“We Co.”), the corporate parent of WeWork, requested that the Securities and Exchange Commission consent to the withdrawal of We Co.’s registration statement because it “no longer wishes to conduct a public

It’s not often that the House of Representatives votes nearly unanimously on anything noteworthy these days, but that’s exactly what the House did on July 17 in voting 406-4 for the “JOBS and Investor Confidence Act of 2018”, also known on the street as “JOBS Act 3.0”, which is the latest iteration of the effort