Review of the Legal Documents used in a Financing Round

Posted in Investments, Securities, Venture Capital

Venture capital is a form of financing that is typically provided by venture capital firms or funds to companies that are in a growth stage in exchange for equity securities of such companies. In recent years it has become standard in the venture capital industry to use a number of different documents in such financings. The following is a list of some of the main documents that are customarily used as well as a brief summary of the various contents of the respective documents.

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  • Certificate of Incorporation: According to Delaware General Corporation Law (the DGCL), the Certificate of Incorporation is a document that must be adopted and filed for a Company to be considered duly incorporated. In other jurisdictions it may be titled differently (e.g., in California it is titled Articles of Incorporation). While the Certificate of Incorporation must include certain basic information such as the name of the company and the classes or series of stock the company is authorized to issue, it also typically includes a description of the company’s stock. This description often addresses the rights, preferences, privileges, and restrictions of each class and series of the company’s stock. Specifically, a large part of the Certificate of Incorporation often focuses on the rights of the preferred stock, including the right to receive dividends, liquidation preferences (i.e., the right to receive the proceeds of any liquidation, including any proceeds paid in the context of any exit, before any proceeds are distributed to the holders of any junior securities), rights to convert the preferred stock into common stock, and events that trigger mandatory conversion (customarily, IPOs meeting certain threshold of valuation and proceeds to the company), redemption rights, anti-dilution rights, and certain preferred veto rights.
  • Stock Purchase Agreement: The Stock Purchase Agreement contains the terms of the purchase and sale of the stock to the investors. Similar to a Stock Purchase Agreement in an M&A context, it typically contains the purchase price, representations and warranties from both the company and the investors, and conditions to closing.
  • Voting Agreement: The Voting Agreement is an agreement among the shareholders of a company. It often contains provisions relating to the control and management of the company by regulating the size of the board and the manner in which the board is selected. In addition, the Voting Agreement may outline drag-along rights, which force minority shareholders to vote in favor of and join a sale in which the majority shareholders have sold their stake (hence the minority shareholders are “dragged-along” for the sale by the majority shareholders).
  • Right of First Refusal and Co-Sale Agreement: The Right of First Refusal and Co-Sale Agreement is an agreement by which the founders, and in some cases some or all of the existing shareholders (the Key Holders), may not sell their shares of the Company without first providing the investors, and in some cases the company, with the right to purchase the shares. If the company or the investors decline to purchase the shares, the agreement grants the investors with the right to participate in the sale pro-rata based on the number of shares held by the Key Holders and the investors.
  • Investors’ Rights Agreement: The Investors’ Rights Agreement may often contain a wide-range of provisions. Among them, it may contain information rights that outline how information regarding the company (i.e., certain financial information) will be shared with the shareholders who hold a certain threshold of shares (e.g., holders of 5 percent of the shares). The agreement often contains demand registration rights, which allow shareholders who hold a certain amount of shares (e.g., holders of 40 percent of the shares) to force the company to register the shares of common stock for trade in a stock exchange, thereby allowing the shareholders to sell their shares to the public. The agreement may also contain a provision granting the investors preemptive rights in the event of a future stock issuance by the company, subject to certain customary exclusions.

As noted, venture capital investments often use these documents, among others, although they may vary (sometimes all the provisions of an Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement, and Voting Agreement, will all be combined into a single Stockholders Agreement). Variations also appear with respect to the contents of specific provisions (e.g., the scope of the liquidation preferences, the events triggering conversion, the scope of the rights first refusal).  As discussed in this summary, it is important to understand the differences of the various documents that are commonly drafted in a venture capital financing.

Greenberg Traurig has an international Emerging Technology practice comprised of attorneys around the globe. For more information on early stage companies and matters relating to venture capital financing, please contact your Greenberg Traurig attorney.

Israeli Startups Continue to Fare Well in 2016

Posted in Startup Nation, Startups

In what has become a staple of lists that review the top startup hubs in the world, a recently published list by Sparklabs Global Ventures has listed Tel Aviv as the number three global startup hub. The list has Tel Aviv right behind Silicon Valley and Stockholm, and ahead of New York City, Los Angeles, London, Berlin and Beijing. With an enormous amount of startups starting their way in Israel every year, it is no wonder the country’s most common nickname is “Startup Nation.” It also comes as no surprise that when the partners at Y Combinator, a leading Silicon Valley based investor that provides seed funding for startups, recently took a whirlwind global tour, a stop in Tel Aviv was on the itinerary.

Greenberg Traurig has a dedicated Emerging Technology Practice and is the only Am Law 100 law firm that maintains multidisciplinary, permanent offices in both Israel and the United States, among many other locations throughout the world. For more information on startups in Tel Aviv or growing your business around the world, please feel free to contact your Greenberg Traurig attorney.

U.S. Treasury Announces $7 Billion Allocation of New Markets Tax Credit

Posted in Tax

The United States Department of the Treasury’s Community Development Financial Institutions Fund (CDFI) has last week announced $7 billion in New Markets Tax Credit (NMTC) awards with the goal of economically revitalizing low-income communities across the country.  Particular outcomes that the CDFI hopes to achieve with this round of awards include investment in nonmetropolitan areas, job creation, expansion of minority-owned businesses, provision of healthcare to underserved communities, and extension of access to healthy foods within current food deserts.  A total of 120 organizations nationwide received tax credit allocation authority under this round of the NMTC Program, the largest amount in its history.

The NMTC can serve as a valuable means of reducing the debt or equity necessary to undertake a project.  In a typical NMTC transaction, a project sponsor can expect to receive a net benefit of 20 to 25 percent of project costs.  For example, a project with eligible costs of $10,000,000 can generate up to $2,500,000 of capital for the project thereby reducing the need for capital from traditional debt and equity sources to only $7,500,000.  This substantial benefit created by the NMTC Program allows it to function as a powerful mechanism for economic development.

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GT Tel Aviv Hosts New York District Attorney Cyrus R. Vance, Jr.

Posted in Cybersecurity, Event, Global, Israel

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Last week, the GT Tel Aviv office, together with Israeli cybersecurity organization, Cyber Together, hosted New York District Attorney Cyrus R. Vance, Jr. and several of his Assistant DAs, for an in-depth presentation about hot-button topics in international cybercrime.

Mr. Vance delivered his presentation, The Fight Against Cybercrime: An International Perspective, to a rapt audience of thirty individuals from leading Israeli cybersecurity companies. The presentation was preceded by a cocktail and networking hour attended by all attorneys from GT Tel Aviv and followed by a lively Q&A discussion led by Mr. Vance.

Adam Snukal, shareholder and head of the GT Tel Aviv’s Cybersecurity, Privacy and Crisis Management Practice, attended the presentation and delivered welcome remarks.

 

2016 Federal Election Overview and Congressional Outlook

Posted in General, Global, Government Law and Policy

NOTE: This information is correct as of 1 p.m. EST, Wednesday, Nov. 9, 2016.

While all the returns have not yet been certified, there is no question that it was a big night for President-elect Donald Trump.  Just as he has done throughout the entirety of the campaign, President-elect Trump stunned political analysts last night by not just winning, but winning big.  And just before 3:00 a.m. EST on Wednesday, Nov. 9, Secretary Hillary Clinton called President-elect Trump to concede the presidential election. To read the full alert, click here.

October 7, 2016: Two U.S. Law Firms Look to a Big New Year in Israel (Law.com)

Posted in General, Global

An Israeli company that prints 3-D circuit boards with silver nano ink ushered in the Jewish new year by listing on Nasdaq last Friday.

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“We see a big opportunity as the law is phased in and businesses are put on the block,” says Greenberg partner Joey Shabot in Tel Aviv.

Shabot first moved to Israel as a toddler in 1980 as part of a late trickle of refugees from the Syrian Jewish community. He spent most of his childhood in the U.S., where he went on to Harvard College and the University of Pennsylvania Law School. Shabot joined Wachtell, Lipton, Rosen & Katz, where he happened to do an Israeli acquisition for Corning Inc. in 2010. The activity and sophistication of the Israeli deal scene came as a revelation to Shabot, who fondly associated Israel with children’s candy treats of shoddy consumer quality.

“My eyes opened to something I never knew existed,” says Shabot. “An M&A ecosystem was developing in Israel.”

Shabot rekindled his passion for Israel, and Wachtell nurtured it by seconding him to an Israeli firm. As that stint drew to a close, the Israel Bar Association opened the legal sector to foreign lawyers as a condition of Israel’s entry to the Organisation of Economic Co-operation and Development. At the initiative of partner Gary Epstein, Greenberg became the first major law firm to take advantage. Epstein picked Shabot from a crowd of talented young lawyers eager to help the firm hang out a shingle (and mezuzah) in 2012.

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Oct. 2, 2016: Israeli Publication Maariv Sums-Up the Past Year with Israeli Business Leaders

Posted in Israel

On the eve of the new Jewish year, Maariv, one of Israel’s oldest and most respected publications, asked some leaders of the business community in Israel to share their most significant achievement from the past year. Among the eight people selected by Maariv was Gary M. Epstein, managing shareholder of Greenberg Traurig’s Tel Aviv office; co-chair of its Israel Practice; and senior chair of the firm’s Global Corporate & Securities Practice, who offered the readers a glance into the Tel Aviv office’s history, recent achievements, and goals for the future:

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GT’s Barry Schindler Speaks Before Israel In-House IP Forum

Posted in Event, Intellectual Property, Israel

Earlier this week, the GT Tel Aviv office hosted 20 members of the Forum of In House IP Managers and Counsel, Israel, for an in-depth seminar about recent developments in the United States concerning obviousness rejections and other matters.

Barry Schindler, co-chair of the firm’s Global Patent Prosecution Group and member of Greenberg Traurig’s Israel Practice, led the event which attracted IP specialists from leading companies in Israel, both local and international.

Co-Chair of the Israel Practice, Bob Grossman, attended the seminar and delivered welcome remarks.

Barry Schindler and Bob Grossman

Barry Schindler and Bob Grossman

The seminar took place as part of the annual IP Best Practices Conference which Barry Schindler will be co-chairing in 2017. The conference is a top IP event in Israel and attracts a large crowd of IP experts from Israel and abroad.

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