Harvey Esquire

Florida added a new fund manager rule in 2024. It also changed one of its most important rules—Here's what you need to know: Florida now offers two exemptions for fund managers: (1) a modified "De Minimis Exemption", (2) a new Private Fund Adviser exemption ("PFA Exemption"). 𝟭. 𝗗𝗲 𝗠𝗶𝗻𝗶𝗺𝗶𝘀 𝗘𝘅𝗲𝗺𝗽𝘁𝗶𝗼𝗻—§𝟱𝟭𝟳.𝟭𝟮(𝟭𝟲)(𝗯)(𝟳) • Under the old De Minimis Exemption (2023), an adviser was exempt from investment adviser rules under Florida law if they met two criteria: (1) they did not publicly present themselves as an investment adviser, and (2) they had no more than 15 "clients" within 12 consecutive months in Florida. However, under the amended rule, the number of clients decreased to "fewer than six (6) clients who are residents of this state". What is a "𝗖𝗹𝗶𝗲𝗻𝘁"—is that the private fund itself or a limited partner? —"[T]he term “client” has the same meaning as provided in SEC Rule 275.222-2, 17 C.F.R. s. 275.222-2, as amended". • After going through some regulatory hoops, we end up with this definition: —"A ... limited partnership, limited liability company, ... or other legal organization ... to which you provide investment advice based on its investment objectives rather than the individual investment objectives of its ... partners, limited partners, members, or beneficiaries." (LPs are considered "owners"). This is a major shift in that the old rule provided for 15, not 5 "Clients" (essentially, private funds). 𝟮. 𝗣𝗙𝗔 𝗘𝘅𝗲𝗺𝗽𝘁𝗶𝗼𝗻—§𝟱𝟭𝟳.𝟭𝟮(𝟮𝟮) Under the new PFA Exemption, a "private fund adviser" (defined as an investment adviser exclusively advising qualifying private funds under Sections 3(c)(1) or 3(c)(7) of the Investment Company Act) is exempt from registration if they meet these conditions: 1) Neither the adviser nor affiliates are subject to SEC "bad actor" disqualifying events 2) The adviser files a short Form ADV with the Florida Office of Financial Regulation 3) Additional requirements apply for advisers managing 3(c)(1) funds that are not venture capital funds: a) The fund must be beneficially owned entirely by accredited investors b) The adviser must provide written disclosure to beneficial owners regarding services, duties, and material information affecting rights/responsibilities Key advantages of the PFA Exemption over the De Minimis Exemption: • Can manage more than 5 funds/SPVs. • No prohibition on "holding out" as an investment adviser • Allows for more public discussion of advisory business (social media) • Provides a clearer path for Rule 506(c) exempt fund solicitation • Fewer regulatory hurdles while providing more operational flexibility Notable aspects of both exemptions: • Does not require limiting beneficial owners to "qualified clients" • Does not require annual audits • More manager-friendly than the NASAA Model Rule Source: Florida 2024 Statutes, https://lnkd.in/g9Q_ugsP

𝗩𝗖 𝗖𝗼𝗺𝗽𝗲𝗻𝘀𝗮𝘁𝗶𝗼𝗻 𝗦𝘂𝗿𝘃𝗲𝘆 𝟮𝟬𝟮𝟰: 𝗚𝗲𝘁 𝗬𝗼𝘂𝗿 𝗙𝗶𝗿𝗺'𝘀 𝗗𝗮𝘁𝗮 𝗜𝗻! John Gannon's Venture5 Media is conducting its annual VC compensation survey, and your participation is key! The 2024 survey data is due this Wednesday, December 11th. By contributing your data, you'll help identify market trends, benchmarks, and provide data-driven insights for compensation negotiations. Plus, you'll receive access to the full 2024 VC Compensation Report. Here's a preview of 2023 compensation ranges (base salary + bonus) for VC firms with AUM ranging from $300M-$1B+ (mid-sized/established/large VC): 𝟮𝟬𝟮𝟯 𝗖𝗼𝗺𝗽𝗲𝗻𝘀𝗮𝘁𝗶𝗼𝗻 𝗥𝗮𝗻𝗴𝗲𝘀 (base salary + bonus) for mid-sized VC firms: • Analyst/Senior Analyst: $50K−150K + $22K bonus • Associate: $60K−242K + $27K bonus • Senior Associate: $60K−360K + $37K bonus • Platform Roles: $90K−300K + $12K bonus • Vice President/Principal: $135K−500K + $63K bonus • Partner (Investments): $0-825K + $113K bonus (Highly variable) • Partner (Operations): $0-825K + $86K bonus (Highly variable) 𝗕𝗲𝘆𝗼𝗻𝗱 𝘁𝗵𝗲 𝗡𝘂𝗺𝗯𝗲𝗿𝘀 This is just a glimpse. The full 2024 report will go into participant age, experience, VC firm type/AUM, and other factors influencing compensation. ⏳ Deadline to participate: December 11, 2024. 🔗 Links to 2024 Survey + 2023 analysis in comments

🚨 𝗔𝗿𝗲 𝗬𝗼𝘂 𝗙𝗶𝗹𝗶𝗻𝗴 𝗙𝗼𝗿𝗺 𝗔𝗗𝗩 𝗳𝗼𝗿 𝟮𝟬𝟮𝟰? 𝗟𝗲𝘁'𝘀 𝗖𝗹𝗮𝗿𝗶𝗳𝘆 𝘁𝗵𝗲 𝗗𝗲𝗮𝗱𝗹𝗶𝗻𝗲𝘀! There is a bit of confusion on when the Form ADV for FY2024 is required to be filed, particularly around the December 9, 2024 deadline for "Renewals". 🔑 Here's the key distinction: • December 9, 2024: This is the *𝗿𝗲𝗻𝗲𝘄𝗮𝗹 𝗳𝗲𝗲* deadline. It applies to all registered advisers and "notice filers" (ERAs) who need to maintain active status in 2025. This isn't the deadline to file your annual update or Preliminary Statement for RIAs registered with a state. • FY2024 Form ADV Annual Filing: The Form ADV isn't due until 90 days after your fiscal year-end. For those with a December 31, 2024 fiscal year-end, your Form ADV isn't due until March 31, 2025. File Part IA for state ERAs. 🔄 Two Easy Steps to Stay Compliant: 1️⃣ By December 9, 2024: • Add $150 (or the appropriate state renewal fee) • Apply to your FINRA IARD Flex Funding/Renewal Account 2️⃣ In Q1 2025: • File your FY2024 Form ADV • Within 90-day window after fiscal year-end (March 31, 2025) 📅 Plan Ahead for 2025 & 2026: For ERAs, the annual renewal process is separate from your annual filing obligations. Take a moment to review your fiscal calendar and budget for renewal fees now to avoid late penalties—but save the Form ADV update for early next year!

𝐖𝐡𝐚𝐭 𝐕𝐂𝐬 𝐍𝐞𝐞𝐝 𝐭𝐨 𝐊𝐧𝐨𝐰: 𝐍𝐚𝐭𝐢𝐨𝐧𝐰𝐢𝐝𝐞 𝐈𝐧𝐣𝐮𝐧𝐜𝐭𝐢𝐨𝐧 𝐇𝐚𝐥𝐭𝐬 𝐂𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐞 𝐓𝐫𝐚𝐧𝐬𝐩𝐚𝐫𝐞𝐧𝐜𝐲 𝐀𝐜𝐭 (𝐂𝐓𝐀) 𝗧𝗟;𝗗𝗥: • A Texas district court issued a 𝗻𝗮𝘁𝗶𝗼𝗻𝘄𝗶𝗱𝗲 𝗽𝗿𝗲𝗹𝗶𝗺𝗶𝗻𝗮𝗿𝘆 𝗶𝗻𝗷𝘂𝗻𝗰𝘁𝗶𝗼𝗻 on CTA • You do 𝗱𝗼 𝗻𝗼𝘁 𝗻𝗲𝗲𝗱 𝘁𝗼 𝗳𝗶𝗹𝗲 beneficial ownership information (BOI) with FinCEN by January 1, 2025 • This is 𝘁𝗲𝗺𝗽𝗼𝗿𝗮𝗿𝘆 𝗿𝗲𝗹𝗶𝗲𝗳 while the courts determine the law's constitutionality • No action needed for now, but stay tuned for updates and be 𝗽𝗿𝗲𝗽𝗮𝗿𝗲𝗱 𝗳𝗼𝗿 𝗰𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 if the injunction is lifted 𝗧𝗵𝗲 𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱 • The Corporate Transparency Act (CTA) was set to impose reporting requirements on businesses, including most venture-backed startups, many private funds and VCs not deemed an "SEC ERA" (that is, any VC fund managers under $25M+ in AUM likely had a CTA filing obligation). • While the burden of filing was low, the consequences of failing to disclose beneficial ownership to the Financial Crimes Enforcement Network (FinCEN) was severe—noncompliance penalties at $500+/day, even possible jail time. • However, the U.S. District Court for the Eastern District of Texas issued a preliminary nationwide injunction halting the enforcement of the CTA and its January 1, 2025, filing deadline. 𝗞𝗲𝘆 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀 1️⃣ 𝗡𝗼 𝗜𝗺𝗺𝗲𝗱𝗶𝗮𝘁𝗲 𝗙𝗶𝗹𝗶𝗻𝗴 𝗥𝗲𝗾𝘂𝗶𝗿𝗲𝗱 • The court enjoined enforcement of the CTA and its implementing regulations (31 U.S.C. § 5336 and 31 C.F.R. § 1010.380). This means companies are not required to meet the BOI reporting deadline unless further orders lift the injunction. 2️⃣ 𝗥𝗲𝗹𝗶𝗲𝗳 𝗜𝘀 𝗧𝗲𝗺𝗽𝗼𝗿𝗮𝗿𝘆 • The court emphasized this is preliminary relief, not a final decision. "The Court has determined that the CTA and Reporting Rule are 𝘭𝘪𝘬𝘦𝘭𝘺 unconstitutional for purposes of a preliminary injunction. It has not made an affirmative finding that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution.” 3️⃣ 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 𝗕𝘂𝗿𝗱𝗲𝗻𝘀 𝗼𝗻 𝗣𝗮𝘂𝘀𝗲 • The court acknowledged the compliance costs as irreparable harm, noting: "FinCEN estimates that the total cost of filing BOI reports is approximately $22.7 billion in the first year and $5.6 billion in the years after. This concession bolsters the Plaintiffs’ belief that they will suffer irreparable harm." 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻 For businesses that already filed earlier in 2024, your efforts may not be wasted. If the CTA is ultimately upheld, you are ahead of compliance requirements. For everyone else, this pause offers an opportunity to prepare for potential reporting obligations, ensuring readiness if the law moves forward. Consider identifying beneficial owners and centralizing this data now, so you're ready to file quickly if the injunction is lifted.

𝗞𝗲𝘆 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 𝗗𝗲𝗮𝗱𝗹𝗶𝗻𝗲𝘀 𝗔𝗽𝗽𝗿𝗼𝗮𝗰𝗵𝗶𝗻𝗴 𝘂𝗻𝗱𝗲𝗿 𝘁𝗵𝗲 𝗖𝗧𝗔 🚨 At the start of next year, the Corporate Transparency Act (CTA) brings in new reporting requirements, and with January 1, 2025, around the corner, venture capital professionals should prepare now. Don't wait! 1️⃣ 𝗘𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲𝘀 🔗 DIY Reporting Portal: https://lnkd.in/dNji6Pya 🔗 FAQs: https://lnkd.in/g6ka-DUt 📄 Small Entity Compliance Guide (this PDF):* https://lnkd.in/gmYhCmiX *FinCEN has provided the 𝘰𝘯𝘭𝘺 𝘰𝘧𝘧𝘪𝘤𝘪𝘢𝘭 𝘨𝘶𝘪𝘥𝘦 to help navigate Beneficial Ownership Information (BOI) compliance. As 1/1/25 approaches, here's what venture capital firms need to know: 2️⃣ 𝗞𝗲𝘆 𝗘𝘅𝗲𝗺𝗽𝘁𝗶𝗼𝗻𝘀 • VC Fund Advisers (>$25M AUM) If your firm qualifies as an Exempt Reporting Adviser under Section 203(l) of the Advisers Act and has filed Form ADV with 𝘁𝗵𝗲 𝗦𝗘𝗖, you’re likely exempt. ⚠️ State ERA-only filers, State RIAs and smaller advisers (<$25M AUM) may need to report!! Talk to your lawyer. • GP/Management Companies Other entities may not be automatically exempt but could qualify under one of 23 exemptions. Requires analysis on a case-by-case basis. 3️⃣ 𝗢𝘁𝗵𝗲𝗿 𝗖𝗼𝗻𝘀𝗶𝗱𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀: • Portfolio Companies: —Often subject to reporting unless a "Large Operating Company" (20+ FTEs in US, $5M in revenue) • Compliance Timelines: —BOI reports due 1/1/25 for entities formed before 2024. —Entities formed in 2024 have 90 days from formation to file. —New companies & amended BOIs after 1/1/25 have 30 days to file. • Penalties: —Civil penalties up to $500 per day. —Criminal penalties up to two years. 💡 Pro Tip: Each entity in your fund structure needs individual exemption analysis. Whether it’s intentional noncompliance or a simple oversight, the penalties are the same—so don’t assume blanket exemptions apply!

⬛ 𝟴𝟱%+ 𝗼𝗳 𝗦𝗲𝗿𝗶𝗲𝘀 𝗔 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴𝘀 𝗻𝗼𝘄 𝘂𝘀𝗲 𝗡𝗩𝗖𝗔 𝗺𝗼𝗱𝗲𝗹 𝗱𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝘀—but it wasn't always this way. Only 3% used the documents in 2004. What changed? • 𝗧𝗵𝗲 𝗬 𝗖𝗼𝗺𝗯𝗶𝗻𝗮𝘁𝗼𝗿 𝗦𝗮𝗳𝗲: Y Combinator introduced the SAFE note in 2013, which was updated in 2018 to use a post-money valuation cap. This led to: 1. NVCA Model 𝗮𝗱𝗼𝗽𝘁𝗶𝗼𝗻 𝗿𝗮𝘁𝗲 𝟮𝘅'𝘀 (10 years) 2. Charters Adopting Series Seed & Shadow Series A SAFEs, designed for simplicity, ended up introducing more complexity at later financing stages—particularly in how they convert to equity. Here’s why: Shadow series are sub-series of preferred stock, created when SAFEs convert into equity. They mirror the rights of regular preferred stock but account for discounts or valuation caps in two ways 𝟭) 𝗖𝗼𝗻𝘃𝗲𝗿𝘀𝗶𝗼𝗻 𝗽𝗿𝗶𝗰𝗲: The "original issue" price at which the early investor's investment converts into regular shares is lower to reflect the discount they received upon conversion (used for anti-dilution, among other rights). 𝟮) 𝗟𝗶𝗾𝘂𝗶𝗱𝗮𝘁𝗶𝗼𝗻 𝗽𝗿𝗲𝗳𝗲𝗿𝗲𝗻𝗰𝗲: If the startup is sold, the early investors get their money back first, up to the discounted price they paid, before common stockholders receive anything. This ensures the company doesn't overpay for early investor discounts (referred to as the "Liquidation Overhang"). EXAMPLE 1: • Angel A invested $100,000 in a SAFE with a 20% discount. • Converts to 125,000 shares of Series A-1 at $0.80/share with the same rights, privileges, and economics EXCEPT for the conversion price. EXAMPLE 2: • Accelerator B invested $100,000 in a SAFE with a 50% discount. • Converts to 200,000 shares of Series A-2 at $0.50/share, again with the same rights, privileges, and economics EXCEPT for the conversion price. However, each SAFE is issued with different terms to create a unique shadow series, increasing cap table complexity and legal costs. 𝗦𝘂𝗺𝗺𝗮𝗿𝘆: • As these two examples illustrate, this conversion process can be replicated to account for a number of different SAFEs a company might offer to its investors for either bridge rounds or as a primary fundraising strategy. • However, each time a company raises a SAFE on a different set of valuation caps or discounts, it increases the complexity of that company's capital structure at the time of conversion. That means more calculations on the pro forma cap table, more types of preferred stock in the Charter and more likely the company sells a higher percentage of the cap table than the founders would want. 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻: • Pre-2010, a Series A round was straightforward with one stock issuances. Fast forward to today, it's not uncommon to navigate 10+ series conversions even at Series Seed stages, increasing complexity & legal costs. • Have you seen this complexity in your own rounds? How do you approach balancing SAFEs and cap table simplicity?

𝗙𝗹𝗼𝗿𝗶𝗱𝗮'𝘀 𝗡𝗲𝘄 𝗘𝘅𝗲𝗺𝗽𝘁𝗶𝗼𝗻𝘀 𝗳𝗼𝗿 𝗩𝗖 𝗙𝘂𝗻𝗱 𝗔𝗱𝘃𝗶𝘀𝗲𝗿𝘀 𝗶𝗻 𝟮𝟬𝟮𝟰 Two key exemptions now apply to venture capital fund advisers in Florida: 𝟭. 𝗗𝗲 𝗠𝗶𝗻𝗶𝗺𝗶𝘀 𝗘𝘅𝗲𝗺𝗽𝘁𝗶𝗼𝗻 • Do not publicly present yourself as an investment adviser • Have no more than five "clients" (which can be SPVs or funds) within a consecutive 12-month period in Florida (prior rule allowed for 15 clients) • Exempts you from Form ADV typically applied to VC fund advisers 𝟮. 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗙𝘂𝗻𝗱 𝗔𝗱𝘃𝗶𝘀𝗲𝗿 (𝗣𝗙𝗔) 𝗘𝘅𝗲𝗺𝗽𝘁𝗶𝗼𝗻 • Fund managers who exclusively manage qualifying private funds, specifically §3(c)(1) or §3(c)(7) funds under the Investment Company Act • Neither you nor your affiliates are subject to SEC “bad actor” rules • File a short Form ADV with Florida’s regulators via FINRA's IARD system • Additional Requirements for Non-VC §3(c)(1) Funds (Secondaries, FoF, etc): —All beneficial owners must be 𝗮𝗰𝗰𝗿𝗲𝗱𝗶𝘁𝗲𝗱 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 —Provide 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗱𝗶𝘀𝗰𝗹𝗼𝘀𝘂𝗿𝗲𝘀 covering services, duties, and any material information affecting beneficial owner rights 𝗞𝗲𝘆 𝗗𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝗰𝗲𝘀 𝗕𝗲𝘁𝘄𝗲𝗲𝗻 𝗧𝘄𝗼 𝗥𝘂𝗹𝗲𝘀: • Unlike the De Minimis Exemption, the PFA Exemption allows you to publicly present yourself as an investment adviser, which generally authorizes broader marketing & operational flexibility: —Promoting services through public channels (websites, social media, etc) —Actively soliciting clients outside of a private network —Providing investment advice to individuals or entities not associated with your private funds 𝗦𝘁𝗮𝘁𝘂𝘁𝗼𝗿𝘆 𝗥𝗲𝗳𝗲𝗿𝗲𝗻𝗰𝗲𝘀: • Fla. Stat. §517.12(16)(b)(7); 517.12(22)(a)-(c) (Updated Nov. 2024) https://lnkd.in/grH_8HBb 𝗠𝗮𝗽 𝘄𝗶𝘁𝗵 𝗥𝘂𝗹𝗲𝘀: • https://lnkd.in/gXm7KrEA

𝗠𝗼𝗱𝗲𝗹 𝗡𝗩𝗖𝗔 𝗗𝗲𝗮𝗹 𝗧𝗲𝗿𝗺𝘀 𝗗𝗲𝗲𝗽 𝗗𝗶𝘃𝗲 A quick reference to core NVCA model doc terms for investors. These are the key economic and control rights typically negotiated in venture deals, particularly for early stage (Series Seed and Series A). Knowing where each term fits can make a difference in understanding deal dynamics. 🟢 = 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗥𝗶𝗴𝗵𝘁; 🟣 = 𝗖𝗼𝗻𝘁𝗿𝗼𝗹 𝗥𝗶𝗴𝗵𝘁 𝟭. 𝗔𝗺𝗲𝗻𝗱𝗲𝗱 𝗮𝗻𝗱 𝗥𝗲𝘀𝘁𝗮𝘁𝗲𝗱 𝗖𝗲𝗿𝘁𝗶𝗳𝗶𝗰𝗮𝘁𝗲 𝗼𝗳 𝗜𝗻𝗰𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗶𝗼𝗻 (𝗖𝗢𝗜)¹ 🟢 Price Per Share: Pre-Money / Fully Diluted Cap. 🟢 Liquidation Preferences: 1x, non-participating is market 🟢 Dividends: Non-cumulative/cumulative 🟢 Anti-Dilution Protection: Broad-Based Weighted Average or Full Ratchet 🟣 Protective Provisions: Investor Veto Rights 🟣 Voting Rights: How investors vote with founders (together, separate) 🟣 Automatic Conversions into Common Stock 🟣 (Optional) Pay-to-Play: Participation in future rounds 🟣 (Optional) Redemption Rights: Investors redeem interests after 5+ years 𝟮. 𝗦𝗲𝗿𝗶𝗲𝘀 𝗦𝗲𝗲𝗱 𝗦𝘁𝗼𝗰𝗸 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 𝗔𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁 (𝗦𝗣𝗔)² 🟣 Company Representations & Warranties 🟣 Investor Representations & Warranties 🟢 Maximum Raise & Final Closing Date 🟢 Counsel Expenses 𝟯. 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀' 𝗥𝗶𝗴𝗵𝘁𝘀 𝗔𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁 (𝗜𝗥𝗔)³ 🟣 Preferred Director Approval Rights 🟣 Management/Information Rights 🟣 Employee Non-Compete Requirement 🟣 Board Matters: D&O insurance, etc. 🟢 Pro Rata Rights 🟢 Employee Equity Vesting Requirements 🟢 Registration Rights 𝟰. 𝗩𝗼𝘁𝗶𝗻𝗴 𝗔𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁 (𝗩𝗔)⁴ 🟣 Board Composition 🟣 Drag-Along Right 🟣 Bad Actors & Sanctioned Parties 𝟱. 𝗥𝗶𝗴𝗵𝘁 𝗼𝗳 𝗙𝗶𝗿𝘀𝘁 𝗥𝗲𝗳𝘂𝘀𝗮𝗹 𝗮𝗻𝗱 𝗖𝗼-𝗦𝗮𝗹𝗲 𝗔𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁 (𝗥𝗢𝗙𝗥)⁵ 🟢 Right of First Refusal 🟢 Co-Sale (Tag-Along Right) 𝗡𝗩𝗖𝗔 𝗗𝗲𝗲𝗽-𝗗𝗶𝘃𝗲 𝗟𝗶𝗻𝗸𝘀: 1. 𝗖𝗵𝗮𝗿𝘁𝗲𝗿: https://lnkd.in/g-FE8cDQ 2. 𝗦𝗣𝗔: https://lnkd.in/gtzW88SC 3. 𝗜𝗥𝗔: https://lnkd.in/gMM3YrRK 4. 𝗩𝗔: https://lnkd.in/gqApr_XA 5. 𝗥𝗢𝗙𝗥: https://lnkd.in/giZFubPY More key insights found here: https://lnkd.in/gSPYxJCn

👉 Archived venture law insights: harveyesq dot com/keyinsights (https://lnkd.in/gSPYxJCn)

𝗗𝗲𝗹𝗮𝘄𝗮𝗿𝗲 𝗖𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗟𝗮𝘄 𝗔𝗺𝗲𝗻𝗱𝗺𝗲𝗻𝘁𝘀 On August 1, 2024, significant changes to the Delaware General Corporation Law (DGCL) went into effect. These amendments address recent Delaware Court of Chancery decisions (𝘔𝘶𝘴𝘬; 𝘔𝘰𝘦𝘭𝘪𝘴) that have impacted deal structures & governance rights. Here's a quick overview of the key legal updates VCs should be aware of: 1️⃣ Stockholder Agreements (DGCL Section 122(18)) • The new rules clarify that corporations can enter into stockholder agreements with current and prospective stockholders with rights outside of the charter (eg, Investors Rights Agreements or Shareholder Agreements). • It also addresses 𝘞𝘦𝘴𝘵 𝘗𝘢𝘭𝘮 𝘉𝘦𝘢𝘤𝘩 𝘍𝘪𝘳𝘦𝘧𝘪𝘨𝘩𝘵𝘦𝘳𝘴’ 𝘗𝘦𝘯𝘴𝘪𝘰𝘯 𝘷. 𝘔𝘰𝘦𝘭𝘪𝘴, where the court found a founder-friendly stockholder agreement violated Section 141(a), which reserves management powers to the board of directors. The new rule restores flexibility in governance by allowing outside agreements, but fiduciary duties still apply and such agreements cannot conflict with the charter. 2️⃣ Board Approval Process (DGCL Section 147) • Boards can approve documents in "substantially final" form, reducing the risk of technical challenges that could invalidate board approval. Allows retroactive ratification of previous approvals. This is important for M&A and charter amendments, streamlining processes and providing clarity around the legal requirements for notice and approval. 3️⃣ M&A Damages (DGCL Section 261) • The amendments now permit parties to a merger agreement to include penalties or allow for damages if a deal fails. This stems from the 𝘊𝘳𝘪𝘴𝘱𝘰 𝘷. 𝘔𝘶𝘴𝘬 decision, where the court ruled that a target company couldn't claim damages for a lost premium if a merger failed. Now, target companies can pursue lost-premium damages and other penalties directly through the merger agreement. 4️⃣ Stockholder Representatives in M&A (DGCL Section 268) • The amendments expand the use of stockholder representatives in transactions, which provides more flexibility in structuring deals involving large groups of stockholders. This solidifies the use of third-party representatives to act on behalf of stockholders, addressing long-standing ambiguity in Delaware law. 𝗞𝗲𝘆 𝗟𝗲𝗴𝗮𝗹 𝗧𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀: • The 𝘔𝘰𝘦𝘭𝘪𝘴 and 𝘔𝘶𝘴𝘬 rulings created uncertainty for VCs but these amendments better align with standard market practices, including the NVCA model forms. • The changes to DGCL Sections 122(18), 147, 261, and 268 ease the burdens of corporate governance, M&A approvals, and handling stockholder rights. • With the expanded board approval rules, VC-backed companies should face fewer legal hurdles related to legal technicalities/challenges. 👉 For venture capitalists, these amendments present an opportunity to revisit stockholder agreements, board consents, M&A provisions, and governance rights to confirm alignment with Delaware's updated corporate law.