Angel Investing Lessons: The First Mover Disadvantage Part II

Guest post by Paul A. Jones of Michael Best & Friedrich LLP

In Part I of this short series, we looked at how the dynamics of A Round financing negotiations can work against earlier Angel investors. As much as A Round VCs might appreciate an Angel setting the table for them, their real concern is maximizing their own return. To the extent that means transferring some of a deal’s upside from earlier Angels (and other pre-A Round contributors) to themselves, well, c’est la guerre.  

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Angel Investing Lessons: The First Mover Disadvantage Part 1

Guest post by Paul A. Jones of Michael Best & Friedrich LLP

Despite the explosive growth of institutional venture capital in recent years, independent Angel investors remain vital components of the high risk/reward entrepreneurship ecosystem. Good Angels fill a role – hands on, value added capital in small amounts at the earliest, riskiest stage of the entrepreneurship cycle – that most of today’s larger venture funds, focused as so many of them are on deals (and entrepreneurs) that are ready for bigger chunks of capital sooner rather than later, just don’t have time for.

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Highlights from the Currently Stalled Small Business Administration Reauthorization and Improvement Act of 2019

Guest post by Damien Specht and Ali Young of Morrison & Foerster LLP

Last month, Senator Marco Rubio, Chairman of the Senate Committee on Small Business and Entrepreneurship, released the Chairman’s mark to the Small Business Administration (SBA) Reauthorization and Improvement Act of 2019 (the “SBA Reauthorization Act”).  This legislation aims to modernize and streamline SBA programs, and would be the first comprehensive reauthorization of the Small Business Act in nearly twenty years.  Although the legislation appears stalled, it is likely that many of these initiatives will find their way into future policy initiatives. Here are a few potential changes to track in the SBA Reauthorization Act:

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Can the good times last? Four factors shaping M&A in the second half of 2019

Guest post by John M. Reiss and Gregory Pryor of White & Case LLP

Many of the factors that have underpinned recent M&A activity remain in place, but concerns are mounting.

Positive drivers of M&A, including the strength of the US economy, the availability of financing and the strategic imperative to consolidate or transform for many corporates have underpinned transactions.

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Vesting Incentive Equity: Time vs. Milestone Vesting Schedules

Guest post by Paul Jones of Venture Best

One of the defining features of the Silicon Valley model of high-risk/reward startups is the allocation of incentive equity to pretty much every member of the startup’s team. Sharing the upside with the team is a great way to build esprit de corps, reduce cash compensation expense, and provide an incentive for employees to stick around as the startup grows.

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An Important Milestone – First Supervised Security Token Offering

Guest post by Andrey Yanai of Barnea Jaffa Lande & Co.

After a long wait, the US Securities and Exchange Commission (SEC) has permitted a startup company to raise funds from the general public through a supervised security token offering (STO) under Reg A+ regulations. Effectively, this is the first time a public STO was granted regulatory approval in the United States. In light of the great importance attached around the world to the US capital market generally, and the position of the SEC specifically, this is a most significant development.

The Reg A+ regulations allow small- and medium-size companies that are unable to meet the heavy financial burden of an initial public offering (IPO) to raise up to $50 million in a crowdfunding track, under supervision.

Several days ago, the SEC permitted the company Blockstack Token LLC to perform the fundraising. Several days thereafter, the approval of a different company, YouNow Inc, was also reported. The founders of Blockstack said that the cost of the process reached $2 million and that the expected total fundraising amount is $28 million. This is an unusual and non-economical fundraising cost, though it is expected subsequent STO fundraisings will be much more cost-effective.  

This joins a list of other developments in the evolution of blockchain technology as it attempts to adjust to the strict demands of securities law. Among these developments, the Framework for “Investment Contract” Analysis of Digital Assets published by the SEC in April 2019 is worth noting. There, the implementation of the Howey test for digital assets was set forth. In it, the SEC analyzes when a digital asset constitutes an “investment contract,” i.e. a security subject to all the regulatory requirements. While it is true that theoretically the SEC left open the possibility that a certain digital asset would be classified as a “utility” and would not constitute a security, in effect, it seems that almost any offer of tokens meets the Howey test.

Additionally, the desired SEC approval for these STOs comes after a line of aggressive enforcement actions against companies that raised funds through an ICO, culminating in a suit filed by the SEC in June 2019 against the messaging app Kik. According to the SEC, this was a pubic fundraising in violation of federal securities laws.

In conclusion, it appears that while the SEC takes a harsh stance against companies it believes operate in violation of the rules, it is willing to give its official stamp of approval to companies prepared to toe the line dictated by the regulations. 

Andrey Yanai 

Andrey, a lawyer in the firm’s Capital Market Department, specializes in advising private and public companies, with an emphasis on dual companies.


Barnea, Jaffa, Lande & Co. is a leading commercial law firm in Israel. We have earned an esteemed reputation for our extensive legal expertise in international activities. More …