Can I Raise Venture Capital as a Public Benefit Corporation?

Guest post by Benjamin D. Stone – Corporate Attorney, Mintz

As societies and markets increasingly insist that corporations generate positive social impact alongside profit, investors have taken notice. The global impact investing market alone, for instance, doubled from $114 billion in 2017 to $228 billion in 2018, and will almost certainly continue to accelerate. [1]

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Super Voting Stock: What is it and how can I get it?

Guest post by Seth Gottlieb, Partner, Cooley LLP

Very often founders raise the concern about protecting against dilution.  Specifically, they are concerned that, as they grow their business and issue stock to investors, employees, and advisors, their shares, and therefore their voting power, will be diluted.  They want to know how they can protect themselves, and their company, from losing control.  Often, this conversation leads to “Super Voting Common Stock.”

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CAUTION: Director Veto Rights in Financing Documents May Constitute “Disproportionate Voting”

Guest post by Lewis J. Geffen, Soobin Kim of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 

Section 141(d) of the Delaware General Corporations Law (DGCL) allows the certificate of incorporation (COI) of a Delaware corporation to confer upon one or more directors voting powers greater than or less than those of other directors, thus resulting in “disproportionate voting” rights amongst the Directors.  When VC funds, their portfolio companies and VC lawyers read or think about DGCL 141(d) and this disproportionate voting, they usually, and narrowly, have in mind only the question of whether certain directors may have more than or less than one vote per Director on matters voted on by the Board, or a committee of the Board. 

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Prime Unicorn Index: 7 Components Added, Return Increased to 40% for 2018

The Prime Unicorn Index added 7 constituents and dropped 3 in its quarterly reconstitution, for a total of 116 index components for Q1 2019. The return for 2018 has increased to 40.19%. Currently, we are tracking 116 U.S.-based private companies in the Index, with a median market cap of $1.06 billion. The Index’s total market value has increased to $323 billion. Key upside drivers affecting Index performance include two successful IPOs (Twist Bioscience Corp and Eventbrite); one acquisition (GitHub); and primary funding rounds (including SpaceX, Rubrik, Plaid, Samsara Networks, Netskope, Allbirds, and more).

The Q1 2019 Prime Unicorn Index Reconstitution Report provides more information on the new 7 constituents and how they compare against the Index.

Press Release: The Prime Unicorn Index Announces Quarterly Reconstitution; Seven Companies Added, While Three Drop Out

Index Climbs More Than 40 Percent in 2018, but prevailing sentiment points toward a correction.

SHREVEPORT, La.–(BUSINESS WIRE) –The Prime Unicorn Index, the first index to track the share price performance of privately-funded U.S. companies, announced today its quarterly reconstitution. The index, which gives equal-weighting to its constituents, has added seven companies that qualify as Unicorns or Approaching Unicorns, while three companies have left the index – two had successful IPOs and one was acquired.

Companies qualify as Unicorns when they have a valuation of $1 billion or more, while companies that have achieved $500 million valuations are classified as Approaching Unicorns, and are also included in the Prime Unicorn Index.

Reconstitution of the index relies heavily on Lagniappe Labs’ proprietary research and difficult-to-source, objective data to determine true valuations of privately-funded companies in a measurable and verifiable way.

The companies added to the index include Rubrik, Plaid, Toast, Allbirds, Netskope, Upgrade and Venafi. Falling out were Twist Bioscience and Eventbrite, which went public , and GitHub, which was acquired. The reconstitution was effective at market close on Jan. 17, 2019.

“The Prime Unicorn Index serves to benchmark the performance of private companies in line with how the S&P 500 Index tracks publicly traded companies,” said Ross Barrett, CEO and founder of the Index. “While we have become a primary resource for media  and investors to help them better understand how to assign the true valuation of private companies, the real attraction of the Index are the trading opportunities it presents to institutional investors.

“These investors, which are typically pension, hedge and endowment funds, increasingly recognize that valuations in the private markets may be excessive and are looking for ways to offset exposure they may have with regard to direct investments in the private markets.

“That’s one of the attractions of the Index in that institutional investors have a unique opportunity to access a fair representation of the private markets and make an investment on its future, whether they want to go long or short.”

While a bet at the beginning of 2018 to the end of 2018 would have yielded a 40 percent plus return, the cacophony of skepticism is building as evidenced by these recent stories:

Pensions & Investments (01/21/19): Unicorns could become an endangered species

The Street (01/08/19): Uber, Lyft and Other Unicorns Could Face a Rough Road to IPO

Wall Street Journal (01/07/19): Genomics Startup Human Longevity’s Valuation Falls 80%

Cheddar (01/07/19): Lyft May Fare Better Than Uber on the Public Markets, Unicorn Expert Says

For more information, please visit PrimeUnicornIndex.com. To explore licensing opportunities regarding the Index, call (646) 429-0949.

About The Prime Unicorn Index

The Prime Unicorn Index is an equally-weighted price return index that measures the share price performance of U.S. private companies valued at $500 million or more. The price changes of component companies are derived from publicly available information associated with company transactions, filings, and other disclosures. The index provides empirical data to asset managers and financial advisors interested in tracking today’s private capital markets. The index is designed for use in the creation of financial products and as a performance benchmark. The Bloomberg Ticker is PUNICORN, while the Reuters Ticker is .PUNICORN

About Lagniappe Labs

Lagniappe Labs uses state, federal and difficult-to-acquire corporate filings in a fully configurable platform that allows users to analyze the value of privately held companies. The technology provides tools and data to build financial models on specific sectors, people, industries, investors and more. Lagniappe Labs federates disparate sources of information to drive objective analysis on private company investments.

New Massachusetts Noncompetition Law Will Impact PE Investors

Guest post by Richard William Kidd, Edward Holzwanger, and Matthew D. Keiser – Kirkland & Ellis LLP

On October 1, 2018, a new Massachusetts noncompetition statute went into effect that will impact PE investors with offices or portfolio companies located in Massachusetts. The key provisions of the new law are set forth below.

Definition Of “Noncompetition Agreement”

The new law broadly defines “Noncompetition Agreements” as any agreement in which an employee or independent contractor “agrees that he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended.”  

The new law does not apply to:

  • confidentiality and intellectual property protection provisions;
  • employee nonsolicitation and no-hire provisions;
  • covenants not to solicit or transact business with customers, clients or vendors;
  • restrictions during the employment/contracting relationship;
  • sale-of-business noncompetition provisions where the restricted party is a “significant owner of, or member or partner in, the business entity” and will receive “significant consideration or benefit” from the transaction;
  • noncompetition provisions that are outside of an employment relationship, which seems to imply that partnership, limited liability company, stockholder and other similar agreements in which an individual is a partner, member or owner, rather than an employee, may be exempt from the new law under this exception (particularly where employees of one entity (e.g., a management company) are partners in, or members or owners of, a different entity (e.g., a limited partnership)); or
  • covenants negotiated and entered into at the time of a separation from service, so long as the person is expressly given seven business days to rescind acceptance.

Forfeiture-For-Competition Clauses Are Covered Noncompetition Agreements

The new law covers any “agreement that by its terms or through the manner in which it is enforced imposes adverse financial consequences on a former employee as a result of the termination of an employment relationship if the employee engages in competitive activities.”1

Limits on Noncompetition Period

Noncompetition Agreements may not exceed one year, unless the individual breached his or her fiduciary duty or unlawfully obtained or retained property belonging to the company, in which case the duration may not exceed two years.

Must Be Consideration

Noncompetition Agreements entered into at the inception of the relationship must be supported by garden leave (which is simply severance) or “other mutually-agreed upon consideration,” which is not defined (but initial employment may satisfy this requirement).

Noncompetition Agreements entered into during the relationship must be supported by “fair and reasonable consideration independent of continuation of employment,” which is also not defined.

Until there is further clarity regarding what satisfies the alternative consideration requirements under the new law, consideration other than a provision for the payment of garden leave during the restricted period runs some risk of being deemed to be insufficient.

Garden Leave

Under the new law, a “garden leave” clause is sufficient consideration so long as it requires a company to pay the individual during the restricted period at least 50% of the individual’s highest annualized base salary within the preceding two years.

If garden leave is provided as consideration, it should be paid for the length of the noncompetition period, up to one year.

Individuals Terminated  Without Cause or Laid Off and Nonexempt Employees Cannot Be Bound to Noncompetition Agreements

Any individual who is either (i) a nonexempt employee under the Fair Labor Standards Act or (ii) terminated “without cause” or “laid off” (with both terms being undefined in the law) cannot be subject to a Noncompetition Agreement. The new law is unclear regarding whether a company can still have noncompetition provisions with these individuals so long as the company is providing garden leave.

Alternatively, it may still be possible to secure noncompetition provisions from these employees either by structuring an employment agreement where an employee must give six months or a year of notice prior to terminating his or her employment or as negotiated at the end of the relationship, as both of these situations are not “Noncompetition Agreements” under the new law.

The Law Is Not Retroactive

The new law only applies to agreements entered into on or after October 1, 2018. However, the new law does not address whether amended agreements or evergreen renewals on or after October 1, 2018, trigger the law.

Very Technical Requirements Must Be Satisfied To Have A Valid Noncompetition Agreement

If entered into at the inception of the employment relationship, the employer must provide the candidate with the Noncompetition Agreement either at the time of a formal offer of employment or 10 business days prior to the commencement of employment, whichever is earlier.

If entered into during the employment relationship, the employee must have 10 business days to review the agreement before it becomes effective.

The Noncompetition Agreement must be in writing and signed by the employer and the individual.

The Noncompetition Agreement must explicitly state that the individual has the right to consult with counsel prior to signing.

The Law Covers Employees and Independent Contractors

The new law covers employees and independent contractors who are employed or engaged in Massachusetts — but does not explicitly cover partners, members or owners.

Choice-of-Law Clauses

The new law severely limits the parties’ ability to circumvent its application by choosing another state’s law to govern the agreement.2

*          *          *

Companies with employees in Massachusetts should review and update their form Noncompetition Agreements in light of the new law.  


1. In many states, such as New York, court will not scrutinize the reasonableness of a noncompetition provision so long as the only result of a breach is the loss of some benefit. Massachusetts appears to have foreclosed this legal construct by holding that such forfeiture clauses also need to conform to the parameters of the new law. 


2. All civil actions relating to Noncompetition Agreements must be brought in the Massachusetts county where the individual resides (the new law does not specify that this must be in state court) or, if mutually agreed upon, in Suffolk County in Massachusetts (in the superior court or the business litigation session of the superior court).


Richard William Kidd, Partner, New York

Richard Kidd primarily practices transactional labor and employment law by assisting clients on national and international corporate transactions, negotiating and drafting complex employment-related agreements, onboarding executives, conducting reductions-in-force, and managing executive separations. Read More…

Edward Holzwanger, Partner, Washington, D.C.

Edward Holzwanger concentrates his practice in the areas of employment and labor counseling and transactional due diligence. Read More…

Matthew D. Keiser, Partner, Washington, D.C.

Matthew Keiser is a partner in Kirkland’s Washington, D.C. office. He concentrates his practice in employment law counseling and compliance training, investigations, employment litigation, and employment law aspects of corporate transactions and private equity. Read More…

Kirkland & Ellis LLC

We are a law firm that serves a broad range of clients around the world in private equity, M&A and other corporate transactions, litigation, white collar and government disputes, restructurings and intellectual property matters. We offer the highest quality legal advice coupled with extraordinary, tailored service to deliver exceptional results to our clients and help their businesses succeed. Read More…