Delaware Court of Chancery Finds a Material Adverse Effect and Permits Termination of Merger Agreement

Post from Insight & Analysis: Wilson Sonsini Goodrich & Rosati

In a 246-page post-trial decision issued this week, the Delaware Court of Chancery ruled that a buyer could terminate a $4.75 billion public company acquisition because of material adverse effects that had occurred at the seller following signing.1 The decision is the first Delaware case to reach such an outcome and provides critical guidance for such situations going forward.

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Spotlight on Rising Stars in VC: Amy Gu

Post reprinted from NVCA BlogVentureForward

Name: Amy Gu

Location: I was born in Beijing, China, and I studied and worked in a number of countries before deciding to call the Bay Area my home.  The Bay Area is a hotbed for entrepreneurs: with innovations happening every day, it’s like a dream come true for me. Not only is this area great for my work, it’s also a beautiful place to relax and recharge –– when I’m not working, I enjoy being outside, hiking and breathing in the fresh air.

Hemi Ventures is based in Palo Alto and San Francisco. We also have satellite offices in New York and London.

Years of VC experience: My first investment was years before I started the Hemi fund in 2016. I was inspired by an entrepreneur, and by investing in his mission, I felt like I was contributing to this rebel and his dreams to improve the world.  I realized this was my passion, and in order to continue investing, I would need to leverage other people’s money, so I founded Hemi.

Position description: I am currently the Managing Partner of the fund, working with a team of four in our Silicon Valley office. I oversee all of the firm ’s portfolios, driving Hemi’s mission to identify various sectors to bring in the biggest possible returns for our investors. I also oversee investor relations since it’s the most important piece of the fund besides the actual investments.

Q. How did you get into the VC industry and what were some pivotal programs, events, and/or organizations that helped pave the way?

For the past 15 years, my career was focused on running startups as well as coaching startups. Prior to founding Hemi, I was the first General Manager of Evernote China and grew the user base to 20 million in four years. I also served as a growth advisor to Udacity and a handful of scaling tech companies. Then, somewhere in the middle, I started angel investing. I enjoyed working with young entrepreneurs as they started their first companies. That led me to start the fund Hemi Ventures, which is focused on investing in people who want to bring new technology to an industry or disrupt an industry with unique ideas. We are one of the earliest funds to identify the investment opportunity in autonomous vehicles, with four investment made in this sector in 2016. It’s amazing to see the amount of capital flowing in, and the knowledge we gleaned in the past two years has made us key opinion leaders in the industry.

Q. What career advice would you give to your younger self?

My advice to my younger self would be to have more patience. When I was young, I didn’t have much patience with people who didn’t excel at their work, or who didn’t strive for excellence. I’m also not patient with myself as a business leader – I’m driven to find success in a short amount of time. I push myself as hard as I can every day to make sure that I am doing everything I can to be the best at what I do. However, sometimes I need to accept that success and excellence take time and no amount of effort can take the place of that time.

Q. What’s on the top of your bucket list?

There’s an Indycar race this September, and I am planning to attend together with our investors. I know how much planning and precision goes into a race and I love the thrill of seeing it all come together.  I’m looking forward to being a part of that action in person.

Q. Which books, articles, podcasts, and/or reports would you recommend for someone interested in learning more about the work that you do?

Running a company is not about excelling at just one thing but being excellent at all things. A great principle needs to be in everyone’s mind to build the company into a great success. This message rang true when I read Principles, by Ray Dalio, which is the book I would recommend. Building a great VC and a great startup both take a strong commitment to principles. At Hemi, our primary job is to invest, but that doesn’t mean the rest of our work can be mediocre. We have high standards in all of our business practices, including areas like marketing, hiring, culture, and internal data management.  We expect the startups we invest in to share these high standards throughout their business. It takes extra effort considering our limited resources but having high standards in everything we do is what sets our company apart from others.

Q. What qualities do you appreciate in the people you’ve worked with?

Venture Capital is as much about human capital as it is about financial capital; humans are the most important asset we have. A great VC team will attract great founders and great investors, thus a strong base of human capital is irreplaceable. The Hemi team is built on three critical values:

  • Integrity: It’s our bottom line at Hemi that everyone will maintain the highest level of integrity including respect for the entrepreneurs that take risks and a level of honesty and transparency in how we manage the fund.
  • Independent Thinking: Those who do not think independently are under the influence of others. The upside of investing usually comes from a freethinker with contrarian opinions at the right time.
  • Hunger for Excellence: Our brains can be lazy and it’s easy to become comfortable with achieving only the bare minimum. Small mistakes can have high costs, so we need to always be disciplined to hold ourselves to the highest of standards.

Q. What impact do you hope to make on the venture capital industry?

I am one of the few female founding partners in the industry, and this is by far the most challenging work I’ve ever had. I hope by seeing my success, people will realize that there are great female investors that can bring tremendous value to the table, not because of their gender, but because of their strength. I love working alongside our founders, sharing their adrenaline ride.  It’s a rush to close an investment in a new startup on a Friday, and then quickly bring the CEO to an important customer meeting the following Tuesday, just a few days later. The impact I want to make is to help our tech rebels trailblaze new markets as they push their industries forward to defy the limitations of today.

Keep up with Amy on LinkedIn!

Reverse Mergers Hinge on Due Diligence and Cleaning Up Public Shells

Guest Post by Laura Anthony, Esq – Legal & Compliance, LLC

When a publicly traded company “goes dark” and becomes delinquent in its filing requirements, it generally becomes a public shell and is no longer quoted on the Over the Counter Bulletin Board Exchange (OTCBB). However, with the assistance of an experienced securities attorney, the shell company can be restored so that a merger candidate can be introduced.

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What We’ve Been Reading

This post is an assembled collection of insights, stories and commentary on startups, venture capital and entrepreneurship.

Zero-sum marketing channels: Good or bad for a startup to pursue?

Many marketing channels are “zero-sum,” meaning that if one company wins a piece of the channel, other companies cannot also use that piece. Jason Cohen looks at whether zero-sum marketing for startups is a good idea in Zero-sum marketing channels: Good or bad for a startup to pursue?

What Startups Can Learn from General McChrystal about Combining Strategy and Execution

 Over at First Round Review, Adam Pisoni interviewed General Stanley McChrystal to see how he helps companies become more effective. They examine one key question: “How do you create a cohesive strategy where many people are executing in unison when the strategy and environment are constantly changing?” Read some of General McChrystal’s thoughts on the subject in What Startups Can Learn from General McChrystal about Combining Strategy and Execution.

Understanding an M&A Term Sheet

 Congratulations! You just received an offer to acquire your company.  A serious buyer will present you with a term sheet that covers the basic terms of the transaction.  Do not make the mistake of agreeing to a term sheet without consulting with your lawyer. Jamie Leigh, Partner at Cooley LLP and blogger at CooleyGo, goes over why it’s important to understand term sheets before you agree to anything in UNDERSTANDING AN M&A TERM SHEET.

Startups are like Patients. They Need Doctors and Hospitals.

I interact with a lot of startups on a daily basis, while they are in various stages of evolution. Often, it feels like being a doctor or running a hospital. That led me to think that startups are a little bit like patients. Some are in the Intensive Care Unit. We’re not sure if they will survive. They need intensive care in order to make it. Every other day someone will come into the Emergency Room, with something urgent that needs to be looked at, either because they had an unexpected accident, or because a problem erupted and they are bleeding. William Mogayar at S-U-M Startup Management examines the analogy of startups and patients in Startups are like Patients. They Need Doctors and Hospitals.

From Around the Web

This post is an assembled collection of insights, stories and commentary on startups, venture capital and entrepreneurship.

Banks and Entrepreneurs: Breaking the Logjam

The partners at Matrix Partners look at the innovation occurring in the fintech sector and why the banks are not leading it.

The Babe Ruth Effect in Venture Capital

Chris Dixon, General Partner at a16z, looks at the “Babe Ruth” effect in venture capital and why new VCs have trouble with it in his blog at CDIXON BLOG.

The Management Framework that Propelled LinkedIn to a $20 Billion Company

First Round Capital – The Review looks at how well defined decision making authority is key to successful CEO transitions and some of the management lessons Jeff Weiner learned.

Proposed Treasury Regulations May End Private Equity Management Fee Waivers

Brian M. Blum, James Chudy and C. Brian Wainwright at Pillsbury Winthrop Shaw Pittman’s InvestmentFund Law Blog look at the common practice of private equity firms converting their right to receive management fees from the funds they manage into the right to receive profits and distributions from the funds through management fee waiver arrangements to achieve a lower tax rate and how the IRS may want to change this.

If You Chase Two Rabbits…

Tomasz Tunguz, Partner and venture capitalist at Redpoint, looks at “When is the right time to expand geographically, add a second product or pursue another customer segment?” Read what his three part answer is.


Activists Redux

Recently, I wrote a piece analyzing the pros and cons for this country’s economy on Activists Investors, citing Marty Lipton versus Lucian Bebchuk of the Harvard Law School on the other side (see My conclusions, however, were based on a issue which, as far as I was aware, none of the analysts, journalists or academics had identified as the most important negative consequence resulting from the rising tide of Activists’ challenges to public company management and boards.

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