Benjamin Zilnicki’s Post

An interesting article. At the core of the problem is the reluctance of companies to go public. For many companies, the cost, administrative burden are simply to great. This includes the required disclosures that relate to social causes and not the underlying issuer’s business. No doubt securities laws have helped create robust capital markets, reduced fraud and improved disclosures. But has the immense regulatory environment gone too far and now prevent small issuers and investors from participating?

I'm excited to share the first post on my new blog over at Substack! 🚀 I'm diving deep into the world of venture capital and the innovation economy, starting with the basics of understanding term sheets. Whether you're a budding entrepreneur or just curious about how venture deals work, this post has got you covered. 👉 Read it here: https://lnkd.in/gEqiRWQV Don't forget to subscribe for more insights coming soon!

This is interesting as it demonstrates the current rise of structured financings in light of the more difficult fundraising environment. Typically it is the existing investors who lead the “structured” follow on financing with terms including increased liquidation preferences, increased dividend rights, etc. A common technique that will be more visible are “pay to play” provisions. “Pay to play” is a term used in term sheets that benefits new investors at the expense of old [doesnt need to be new investors by the way]. It grows in popularity during market downturns (which is why it has become increasingly common in 2024, according to data from Cooley.) Essentially, it forces existing investors to buy all the pro rata shares they are entitled to or the company will take some punitive action, like converting their shares from preferred shares, with extra rights, to common shares, explains AngelList.” What is unusual here is that this structured deal is being led by an ousted CEO with a questionable history at an implied valuation of almost 500 times the revenue. Take out the 🍿on this one.

Absolutely brilliant. These foundational principles set the stage for durable growth, clear terms, and a balanced relationship with investors.

This is a very large increase in investor friendly terms and company/ founder/ early investor unfavorable terms. However, this is a distorted view, as this counts together all rounds that are classified as “series-A”, which I know first hand includes many bailout out type and down rounds of startups that over extended and got too much of a Seed too early and need to reset in one way or another to survive. Going forward, once we settle into a new normal, terms should stabilize.

One of the things that has been notable about the current venture market downturn is that deal terms have remained relatively stable - with the very notable and critical exception of valuation. This focus on valuation contrasts with the post-2001 tech bubble when punitive financing terms increased dramatically in 2002. The attached page is from a 2003 report from the then Hale and Dorr law firm. It reports the following in 2002: ➡ Over 30% of deals had liquidation multiples ➡ A majority of deals had participating preferred ➡ A majority of deals had accruing dividends ➡ Full ratchet anti-dilution protection was present in about 25% of deals In the current market, I do not think any of these deals terms are present in more than 10-15% of deals and while they have become somewhat more common than in 2021, not dramatically so. Candidly, not completely sure why.

Series A Deal Terms in 2002 (frequency of term): • >1x liquidation preference: 38% • Participating Preferred: 56% • Cumulative Dividends: 81% • Full Ratchet: 28% • Pay-to-Play: 23% Source: Dror Futter via Hale and Dorr 2003 VC Report #venturecapital #history #law #startups

How Are You Leveraging Private Equity to Propel Your Business Forward?" There's no denying the impact private equity can have on a business, and Shore Capital Partners is a prime example of this. Led by Kirkland & Ellis LLP, they've recently pooled hefty commitments totaling almost $2 billion across just three funds. Yes, you read that right - $2B! 😱 Given this monumental achievement, it's safe to say that they are positioned for nothing but success in their continuous pursuit for excellence. Speaking of success, is your venture geared up to stay ahead of the game? 🚀My team and I specialize in rapidly developing AI solutions designed specifically to help you outpace your competition. Trust me when I say we're all about boosting your ambition till it turns into reality! Got a minute? Book a meeting with me today: https://lnkd.in/dMu5TpiV Whether you're planning on expanding your enterprise across Europe or the United States, exploring untapped markets could unveil incredible opportunities - keeping you firmly ahead. I'm so proud to share with you all that our global corporate development network includes 160K+ heavyweights from Strategy, Business Development and M&A sectors who are eager to drive venture growth while gleaning insights from CEOs and founders alike. With our vast reservoirs of knowledge and access to resources at disposal, we're set on taking exceptional tech startups to unparalleled heights! Find out more about how Kirkland led Shore Capital struck gold here: https://lnkd.in/dqDp_T3m #PrivateEquity #ShoreCapitalPartners #BusinessGrowth #AI #InnovationAccelerator #VentureExpansion #GlobalNetworks  #BusinessStrategyDevelopment #TechStartups #NavigatingSuccess

It's easy for a founder to think that closing a financing means it's "over". And in a lot of ways, it is! The ink is dry, the money's in the door, and the celebrations are underway. But the truth is, there's always at least a *little* more to do. So for folks who like to stay ahead of the game, some good things to keep in mind post-closing are: 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐟𝐢𝐥𝐢𝐧𝐠𝐬. There are public securities filings you can make after your financing closes (e.g., Form D), which you may or may not choose to file based on your circumstances. So read up, and weigh your options with your lawyer. Note that the Form D filing deadline is 15 days post-close. 𝐒𝐭𝐨𝐜𝐤𝐡𝐨𝐥𝐝𝐞𝐫 𝐍𝐨𝐭𝐢𝐜𝐞. Assuming that 1) you're a Delaware C-corp, 2) your stockholders approved the financing via written consent, and 3) you didn't have all your stockholders sign that consent, you'll need to notify the rest of them (required by Delaware law). Usually, this notice looks like a simple FYI that your lawyer can prepare for you, which you then sign & send around. 𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐑𝐢𝐠𝐡𝐭𝐬 𝐚𝐧𝐝 𝐂𝐨𝐯𝐞𝐧𝐚𝐧𝐭𝐬. Take stock of the promises you made to your investors in this round. Did you say you'd adopt certain policies within a particular timeframe? Set some calendar alerts. Are certain investors entitled to special information rights, observer rights, etc? Keep an internal list. Your lawyer will help distill and remind you of these requirements - but it's good for you to have a full grasp of what will be required of you when, so it doesn't fade into the background. Fellow startup attorneys: what else do you like to remind founders about post-closing?

Jamin Ball nails what I believe is the biggest issue for founders in today’s private capital markets environment (both PE and VC). He observes that a few too many firms have decided that growing portfolio companies is hard, but moving money as fast as possible so you can raise more money (and associated fees) is comparatively easy. And that's a problem... First off, this shift in mindset changes incentives on transactions. It’s not uncommon for sellers to be asked to sell down more than they wanted (or take on balance sheet cash they don’t need) just to accommodate somebody’s minimum check size. This is the tail wagging the dog – a prospective financier’s goal of deploying capital shouldn’t change an operating company’s business plan. But more importantly, having a shareholder who’s focused on deployment creates other challenging dynamics at operating companies. If your board member is treating the company as one lottery ticket out of many, is that really aligned with the level of support you want, or how you want to operate the business? Founders have a “portfolio” of one, and they deserve a shareholder who has real skin in the game. (Shameless plug: because we don’t have outside investors at Stone Street Software, we’re set up to avoid this exact set of perverse incentives… if we’re not growing companies, we’re not making money, full stop.) https://lnkd.in/et7fJbEs