Wednesday, February 17, 2010

Upcoming VC Events in the Southeast

I was just looking at my calendar and thinking about how busy things are going to be. There are lots of good venture capital oriented events coming up in the next few months.

If you are thinking about raising capital or if you are doing something innovative in the Southeastern United States, consider attending one or more of these. Also, let me know if you will be there -- I always like meeting folks that are doing interesting things. And I am always good for a coffee or beer!

I am attending the following big regional/national conferences:

- SEVC: The Southeast Venture Conference. February 24 and 25 in Tysons Corner. I will be up in Tysons for most of the week, so let me know if you can connect.

- SXSW Interactive: The mecca for US emerging technology, gaming and eCommerce companies. March 12 through 16 in Austin, Texas. I will be in Austin starting on the 11th. Let me know if you are in town and we can definitely meet up.

- CED Venture Conference: Bringing together the best and brightest in the RTP region. April 20 through 22nd in Pinehurst, NC.

- MAVA's Capital Connection: A great conference at a new time. May 19 and 20 in Baltimore, MD.

Also, for the Central Virginia folks, we have some upcoming Venture Forum events:

- This Thursday (2/18) we have a Venture Out event at the Bull and Bear Club. This one is co-sponsored by my friends at Transact Capital and Deacon, Norman & Anderson. And, as usual, there will be plenty to drink. I am particularly happy that DNA (Deacon, Norman & Anderson) are co-sponsoring. They are an excellent client and I am excited to see their development.

- On 3/18 we will have a Venture Forum luncheon. The topic is still TBA, but I guarantee it will be a good one. Stay tuned.

- On 4/15 we have another Venture out and then on 5/20 the last Venture Forum luncheon before the summer. Make sure you put them on your calendars.

Every time I go to one of these events I meet some of you who are out there innovating and also reading me on this blog or on Twitter. Keep up the great work! Click Here to Read More..

Monday, February 15, 2010

MC Escher in Legos

I really wish I had made this. So cool.


Check out its construction on the original blog. Its creator, Andrew Lipson, has also made a bunch of other cool stuff. Click Here to Read More..

Sunday, February 7, 2010

The Basics of Film Financing

It's been a few years since I have been actively involved in film financing. I left LA in 1995 and have only been back since for weddings and funerals. However, recently I've been seeing some term sheets for films again and it has reminded me that the basic structure of a speculative film financing is quite different than what you see in a VC or PE style investment in an emerging growth company.

Typically, the first thing you would do for an independent film investment vehicle is set up an LLC for each film. The angel (production development) investors would then put in the initial capital. The interesting quirk is that these angel investors are typically cashed out upon first round/production financing. This is a significant difference from a technology/emerging growth company, where the angels or seed investors are expected to stick around for the long haul -- no one is taking any money off the table in an emerging growth deal.

In film financing, the angel round/development financing will range from $150k to $500k, with the production round ranging from as little as $1.5mm all the way up to $10mm or more.

From time to time you will see a combo debt/equity investment in the development round, but this is much less common than in emerging growth. Also, unlike emerging growth where the bridge debt will convert into the next equity round, in film financing you will almost always cash out the debt and then give the debt investor the right to participate in production finance round -- the right but not the requirement to roll over the investment.

Another interesting difference is that development costs are built into the overall budget that is financed with the angel financing, so these development costs are almost always recouped when the actual first round production financing is obtained.

As you can see, production development financing for a film concept, although superficially using similar terminology to an emerging growth company (ex. angel investment, first round financing), is really quire different. If you are not familiar with it and are thinking about investing, you should definitely consult with someone who is -- otherwise your assumptions may lead you astray. Click Here to Read More..

Friday, February 5, 2010

Open My Eyes That I May See ...

I wonder what the monks would think about the iPad?



Thanks to Steve Blank for finding this. Click Here to Read More..

Your Website is Public

I realize this may be an obvious statement. Your website is public.

However, consider what that means in the securities offering context. Say you post details about your fund raising efforts on the publicly available part of your website. Maybe not exactly as part of your fund raising effort, but as an attempt to get information out there -- a stock offering is newsworthy, right?

Well, as I mentioned yesterday, in order to have a valid Reg. D private placement (and, consequently, in order to be exempt from registering your securities offering with the SEC) you must avoid any "general solicitations" when you are doing a Reg. D private placement. A general solicitation is defined as offering to sell securities by "any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media."

And guess what? The SEC considers an internet posting about your securities offering to be "other communication" published in "similar media." So, if you post details about your fundraising, you may very well be making a general solicitation and inadvertently blowing your securities law exemption.

Now, this may not be fatal. But before you can know, it will take a review of exactly what details of your offering you put on your website and an analysis of whether your actual potential investor saw these details before they initiated contact with you.

But why take the chance?

For example, earlier this month I was looking at the website of an interesting medical device company that had approached me to represent them going forward. On their main page they had a link called "Investors." When you clicked it, you were taken to a page that said (roughly): "We are currently raising $8,000,000 in a Series B financing over multiple closings. Please contact Fred Smith at Phone Number XX for more information."

On its face, it is hard to view this as anything other than an advertisement for a securities offering. If a serious investor (that was a stranger to your company) actually contacted you out of the blue and said "hey, saw the website and the page about the Series B financing and would love to get more info." Wouldn't it be tricky to argue that he was not interested in investing in you at least partially "because" of the advertisement he saw on your website?

I can tell you one thing that is certain -- you will not be very happy when your lawyer tells you that you can't take money from him because he found out about your offering through your website.

An quick and easy way to minimize this problem would be to add some sort of disclaimer to whatever web pages you have that talk about your offering. Maybe something like "This is not an offer to sell securities." Just a few simple words like that are potentially enough to switch your web page from a securities offering advertisement to more of a news report about current company events.

Of course, simply putting a limp little legend like this on an obvious securities offering (say with full term sheet and subscription agreement available on the web) won't help you. In that type of situation you are hosed anyway. But in a close call like the example above, adding the legend may be enough to get you out of the danger zone.

Be careful out there people and try not to violate securities laws. Click Here to Read More..

Thursday, February 4, 2010

Sorry folks, this Securities Offering is "Members Only"

Sometimes, when it rains it pours. Yesterday, I did a post on Free Stock a stunningly easy way to violate securities law. Then, today, I came across a local creamery that was violating one of the foundational tenets of securities laws -- they were making an unregistered public offering of securities.

Now, it may seem strange that an ice cream store could be making a public offering. Even a really good ice cream store (and trust me, this one is pretty good.) However, next to the register, they had a sign that said (roughly): "We value you our loyal customers. As a way of showing our appreciation (and as a way for you to help us survive the recession) we will sell you a share of stock in our company for $10 each."

BAM -- securities law violation.

You see, the thing about offerings of securities is that they must either be registered with the SEC (e.g. through an IPO) or they must be "exempt" from registration. There are a whole mess of exemptions, most of which you (and I) will never need to know about. (For example, interests in a railroad equipment trust are exempt. Who knew?) However, the most important exemption for a baby company is the exemption for transactions "not involving any public offering." That is, private transactions. There are a variety of safe harbors and legal interpretations that help us figure out what a non-public offering is -- you may have heard of Reg. D, which is the most common -- but at the most basic level your offering cannot be made to the general public. Under Reg. D, this is called (in classic lawyer speak) the prohibition on "general solicitations."

Let's just be clear here, there are plenty of subtleties involved in defining exactly what a "general solicitation" is, but -- when you post a sign in public asking folks to buy your stock, it's pretty darn clear that you are making a general solicitation.

Or to put it differently, just remember this, when you sell stock, the sale should pretty much always be "members only." If you are offering to sell stock to the general public and, if you are not kicking off a registered IPO (believe me, you'll know it if you are kicking off a registered IPO), then you are likely violating securities laws.

And, as I have said before, please be safe out there and try not to violate securities laws. Click Here to Read More..

Wednesday, February 3, 2010

No Such Thing as a Free Lunch (or Free Stock Either)

Recently, I've come across a phenomenon that I thought was long dead and buried -- free stock. That is, start-up companies that are giving away stock in return for a customer signing up for a mailing list or in return for recommending some number of friends.

The deal seems too good to be true -- all you have to do is sign up and you get 10 shares of stock! In 5 years when the company IPOs, you'll be fabulously wealthy. Or something like that.

The problem with this arrangement is that the stock is not really free. While it is true that no one is paying any cash or stroking any checks, there is still an exchange of consideration. You had to do something to get the shares -- they didn't just show up on your doorstep like a lost baby.

Back in the dot com era, this was a popular trick to build buzz for your e-commerce site. (As an aside, I believe I am still technically entitled to 100 shares of Travelzoo.com...)

But, like it does with most securities-related things that seem to good to be true, the SEC shut down these offers of free stock with extreme prejudice in mid-1999. If a person is required to "sign up" and "disclose valuable personal information" in order to receive your stock, they are giving you consideration and you are offering to sell and selling securities. And -- as you probably know -- it is illegal to offer to sell or sell securities unless you have registered them (e.g. in an IPO) or unless you have an exemption from registration. It is highly unlikely that your public offer of free stock to anyone that signs up would be eligible for an exemption.

So folks, let's be safe out there, try not to violate securities laws, and don't give away any "free stock." Click Here to Read More..
 
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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.