In the first blog post about cap tables, we talked about setting up equity compensation pools.  In this blog post, let's learn how to add a new equity investment to the cap table.  Let's assume that our startup has 2,000,000 founder shares outstanding, a 500,000 equity compensation pool, and a pre-money valuation of $1 million.  The investor is investing $200,000. So, the cap table pre-financing looks like this:                            Type of shares      &n ..read more

 I have to admit: cap table calculations are not easy and not all startup lawyers enjoy this part of their jobs.  However, no matter how hard it can get, being able to make sense of the cap table is an essential skill for startup lawyers.  Since I have just finished teaching this to students at Fordham Law's Entrepreneurial Law class, I thought I would share some of the calculations here with you.   Let's start with your basic cap table:                             Stock ..read more

This Fall 2020 has seen an unprecedented number of rulemaking by the Securities and Exchange Commission (the “SEC”) that will be remembered for years to come.  I will attempt to summarize the changes for you in a series of blog posts.  Altogether, the changes will have lasting ramifications for the U.S. capital markets, enabling (I predict) an even greater flow of capital to the private markets.  The changes come at an important time when, due to the pandemic, many have lost jobs and may be launching their own ventures. Below are the notable changes: 1. A revised definition of ..read more

Yesterday, on May 4th, the Securities and Exchange Commission (the "SEC") adopted temporary rules (through the end of August) making it easier for smaller companies affected by COVID-19 to raise capital through a Regulation Crowdfunding offering.  To rely on these temporary rules, the issuers will need to disclose to the investors that they are specifically relying on them as well as meet certain enhanced eligibility requirements, one of which is that the company has been in existence for over 6 months.  The SEC press release provides a good overview of the temporary rules. In parti ..read more

Мы организуем бесплатный вебинар на тему открытия бизнеса в США. Вебинар покроет не только юридические вопросы но и налоговые. Присоединяйтесь 14 мая в 17:00 по МСК! https://www.eventbrite.com/e/104361225234 ..read more

Although Regulation Crowdfunding (or Reg CF in short) is a great way to get funding for companies that otherwise would have been overlooked by angel or VC investors, running a successful and compliant Reg CF campaign is not an easy undertaking. Based on experience working with Reg CF issuers, in this blog I describe and discuss three key legal challenges that all Reg CF issuers should know about: restriction on advertising, hiring promoters, and putting together a complete and accurate Form C. First, the issuer cannot generally solicit and advertise its Reg CF offering. All communications mus ..read more

The definition of an “accredited investor” is the cornerstone of Regulation D that provides a safe harbor exemption for private placements of securities by startups and more mature companies. Only in 2018, $1.7 trillion was invested into the startup sector by means of Regulation D offerings, out of which $228 billion was raised by companies rather than investment funds. Nearly all of the investors in such offerings were accredited. Now, the definition of an accredited investor may be changing to include new categories of people. This will open the extremely risky but yet extremely lucrative st ..read more

You have just formed your very first Delaware corporation. Congratulations! Although as a busy founder you may not have time to take care of ongoing corporate maintenance, there are some minimum corporate formalities that you should strive to maintain.  Below is my list and the reasons why. One of the main benefits that is afforded by corporate structure is the limited liability protection for its owners. This means that the corporation and its stockholders are treated as separate legal entities. The corporation enters into its own contracts, and therefore, it is only the corporation’s ass ..read more

On August 13, 2019, the SEC filed a complaint against Stuart Frost and Frost Management Company, LLC for violating the antifraud provisions of Sections 206(1)-(2) and 206(4) of the Investment Advisers Act.  This case is a reminder that certain provisions of the Advisers Act apply to all investment fund managers, regardless of whether they are registered, non-registered, or exempt (exempt reporting advisers are referred to as "ERAs").  Also, this case highlights once more the importance of proper disclosure of management fees and expenses (and that they have to be reasonable and market). Mr. F ..read more

On July 24, 2019, the SEC charged Facebook Inc. $100 million for inaccurately disclosing the risk of misuse of user data.  Facebook agreed to pay, without admitting or denying any wrongdoing.  So, what happened? According to the SEC complaint, the Facebook public filings (such as the annual reports on Form 10-K or the quarterly reports on Form 10-Q, etc.) informed the public that "our users' data MAY be improperly accessed, used or disclosed" (emphasis added), but in fact, at that time Facebook already knew that it was true.  It all goes back to the infamous Cambridge Analytica scandal (CA pa ..read more