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First Time Funds: The fundraising environment is strong; the fundraising process is hard 01/16/2018

Posted by Morse Barnes-Brown Pendleton in Attorney News, Financial Services, Private Investment Funds & Advisers.
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JHW Headshot Photo 2016 (M0990045xB1386)Raising capital for a first time private equity fund is difficult. First time fund managers often are surprised by how long it takes to secure enough capital commitments to hold a fund’s initial closing, particularly when seeking commitments from institutional investors. The good news is that first time funds have recently been in favor with investors. In his article First Time Funds: The fundraising environment in strong; the fundraising process is hard, Josh Watson explains the current fundraising environment and what first time fund managers should know.

Read the full article on our website. For more information, please contact Josh Watson.

Adviser Sanctioned for False Statements to Prospective Investors 01/11/2018

Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Financial Services, Private Investment Funds & Advisers.
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JHW Headshot Photo 2016 (M0990045xB1386)The Securities and Exchange Commission sanctioned a private equity fund adviser and its chief executive officer for making false statements about the other investors that had committed to invest in one of the adviser’s private equity funds. As part of a settlement with the SEC, the adviser agreed to cease acting as an investment adviser and its chief executive officer was barred from the investment management industry and ordered to pay almost $375,000. In his article Adviser Sanctioned for False Statements to Prospective Investors, Josh Watson explains how the SEC determined that Gray Financial Group, Inc. misled investors regarding its private equity fund.

Read the full article on our website. For more information, please contact Josh Watson.

Valeritas Featured on Fox Business Network’s Top Morning Show 12/19/2017

Posted by Morse Barnes-Brown Pendleton in Client News, Life Sciences, Medical Devices.
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big valFox Business Network’s show “Mornings with Maria” featured firm client Valeritas Holdings, Inc. In the segment, Valeritas CEO John Timberlake discussed the V-Go daily insulin delivery device, which is the only such device worn as a patch, and is meant to make life easier for those with Type 2 diabetes. John Timberlake was joined by Joe Dougherty, a patient with Type 2 diabetes, who was asked about his experience with V-Go.

To hear about Joe Dougherty’s experience with V-Go and for more information, watch the segment or read Valeritas’s press release.

A Happy Patent Holiday 12/12/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Games & Interactive Entertainment, Intellectual Property.
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M0846496‘Tis the season for holiday cheer and shopping for the perfect holiday gifts. Behind all the holiday hustle and bustle is the intellectual property protection that assists in the commercial success of sought after products. A combination of copyright, trademark, and patent protections can be utilized by manufacturers and retailers to keep the toys from being copied by competitors trying to cash in on the frenzy and popularity of an item. Getting into the spirit of the holiday season, in his article A Happy Patent Holiday, patent attorney Brian Assessor examines the patents behind some of the most successful toys, and how those patents helped protect the sale of the toys during the holiday season and beyond.

Happy reading and happy holidays!

Shannon Zollo Comments on Proposed Aetna-CVS Deal in The National Law Journal Article 12/06/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Life Sciences, M&A.
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M0846567Corporate partner Shannon Zollo commented on the legal scrutiny facing CVS Health and Aetna’s planned merger in The National Law Journal’s article “Lawyers Say Fed. Regulators Likely Will Closely Scrutinize Aetna-CVS Deal.” In regards to the proposed merger, which would be a large consolidation within the healthcare industry, Shannon notes that:

 

It’s logical to anticipate [close scrutiny] based on the size and importance of the industry as it relates to the U.S. economy and well-being,” and that the effect the transaction has on competition “is informed by a number of factors, including how many players are left in the field after the deal is completed; the effect on existing customer and vendor relationships and the massive amount of integration required to consummate the deal.”

For additional insight from Shannon and information about the deal, read the full article.

Venture Capital Firms Defend Significant Appraisal Award on Appeal 12/04/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Financial Services, Venture Capital & Private Equity.
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M0846500By: Scott Bleier

Originally published in the ABA’s Business Law Today.

In October, the Delaware Supreme Court heard oral arguments in an appeal from the Court of Chancery’s 2016 appraisal decision which awarded Polaris Venture Partners and Ad-Venture Capital Partners more than a 2.5x increase (plus interest) over the price per share paid to stockholders in connection with a 2013 cash-out merger of minority stockholders of ISN Software Corp. (ISN), a venture-backed company. Following the 2013 merger, both Polaris and Ad-Venture sought appraisal of their ISN shares pursuant to Section 262 of the Delaware General Corporation Law. At trial, Polaris Venture’s expert opined that the fair value of a share of ISN stock was greater than eight times that implied by the valuation provided by ISN’s expert, although all experts relied to some extent on the guideline public company analysis (valuing ISN based on trading multiples derived from publicly traded companies that were similar to ISN) in valuing ISN.

In its opinion, the Delaware Court of Chancery determined to rely exclusively on the discounted cash flow (DCF) method in appraising the statutory “fair value” of ISN shares at $98,783 per share, a 257% increase to the $38,317 per-share merger consideration, finding several other valuation methods to be unreliable given that ISN was privately held and had not reached a “steady state of growth.” The case illustrates the unpredictable nature of valuations of venture-backed companies and suggests that a DCF valuation may be the Delaware Court of Chancery’s preferred methodology in an appraisal of an early-stage growth company.

For more information, please contact Scott Bleier.

Issuance of Founders’ Equity: What’s the Right Slice of Pie? – MBBP Venture Capital Event, December 7 11/27/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Events, Venture Capital & Private Equity.
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JMH Headshot Photo 2015 (M0846571xB1386)Our venture capital event, Issuance of Founders’ Equity: What’s the Right Slice of Pie?, will be held on Thursday, December 7 from 4:30-6pm at the Cambridge Innovation Center (CIC). Moderated by corporate attorney John Hession, the panel will discuss the unique challenges and issues surrounding the allocation of equity for early-stage companies. The panel includes:

Abi Barrow, DirectorUniversity of Massachusetts, Office of Technology Commercialization and Ventures (OTCV)@AbiBarrow
Carsten Boers
, Managing Partner, Rhapsody Venture Partners
Greg ErmanPresident & CEOEmpiraMed

Space is limited!  View our event page for more information and to register for the event.

Joseph Hunt Joins MBBP as Corporate & Tax Associate 11/14/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Computer Software & Hardware, Corporate, Life Sciences, MBBP news, Taxation, Venture Capital & Private Equity.
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JEH Headshot Photo 2017 (M1147148xB1386)We are pleased to announce the addition of corporate and tax associate, Joseph E. Hunt IV.

Joe advises emerging and middle-market companies in a wide range of industries and at all stages of their development.

Joe also provides counsel to clients on general tax matters, entity formation, and on corporate governance. Prior to joining MBBP, he worked in the Mergers & Acquisitions Transaction Services of a Big Four advisory firm. He focused on advising private equity and multinational corporate clients throughout the M&A life cycle in both buy-side and sell-side transactions, maintaining an emphasis on software, life sciences, and technology industries.

For more information, read the full announcement.  We invite you to contact Joe directly.

Privy Announces Two Major Company Milestones 11/03/2017

Posted by Morse Barnes-Brown Pendleton in Client News, Manufacturing, Retail & Service.
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Privy Logo (M1132361xB1386)MBBP client Privy announced two milestones for the company. First, with assistance from MBBP, Privy closed over $2 million in new funding from angels, Accomplice, and Kiwi Ventures. Second, Privy now serves over 200,000 small and medium ecommerce businesses in over 180 countries.

Privy is a marketing platform that empowers marketers to build more customer relationships, faster. It aims to “enable new business owners with no technical skills, as well as more established marketers, to run effective campaigns that have an instantaneous impact on their stores.”

Congratulations to Privy on these achievements. Read more in the full announcement.

Amanda Schreyer Speaking on Social Influencers Panel for the Copyright Society of the USA 10/12/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Events, Intellectual Property, Internet and E-Commerce.
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AES Headshot Photo 2017 (M1117143xB1386)Curious about who social influencers are and how they develop their careers and business relationships with brands and services? Don’t miss MBBP intellectual property attorney Amanda Schreyer on the Copyright Society of the USA’s panel “Social Influencers: Copyright, Publicity and Social Media Contracting.” Amanda, along with Maria Guerra of Influence Central, will speak about the relationship between social influencers and intellectual property and internet law. The panel will be held on October 30, 5:30-7pm at Northeastern University School of Law.

More information and registration details can be found on the Copyright Society’s event page.

Behind the Curtain: An inside look into the operations of VC firms – MBBP Venture Capital Event, November 7 10/11/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Events, Financial Services, MBBP news, Venture Capital & Private Equity.
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MRJ Headshot Photo 2017 (M1047116xB1386)Our venture capital event, Behind the Curtain: an inside look into the operations of VC firms, will be held on Tuesday, November 7 from 4:30-6pm at the Cambridge Innovation Center (CIC). Moderated by corporate attorney Mike Jabbawy, the panel will explore how the internal realities of a venture capital firm might have an impact on a technology company looking to build a business based on a venture capital finance strategy. The panel includes:

Dana Callow, Managing General Partner, Boston Millennia Partners
Frank Castellucci, General Counsel & Partner, Accomplice
Juan Luis Leung-Li, Partner, Tectonic Ventures

Space is limited!  View our event page for more information and to register for the event.

American Cancer Society Awards David Sabatini of Whitehead Institute with Five-Year Renewable Research Professorship 10/03/2017

Posted by Morse Barnes-Brown Pendleton in Client News, Life Sciences, Nonprofit.
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David Sabatini, MD, PhD, of MBBP client Whitehead Institute for Biomedical Research, was awarded the prestigious five-year renewable American Cancer Society Research Professorship. The award is part of a larger approval of funding for 78 research and training grants totaling $39,836,250.

According to the press release, Sabatini “looks to maximize the precise targeting of cancer drugs into the relevant tissues by exploiting the specificity of transport proteins embedded in lipid membranes on the surface and within cells. If successful, this approach could address a major challenge in drug delivery and could lead to safer and more effective cancer therapies.”

Congratulations to Mr. Sabatini. More information can be found in the press release.

Attack of the Indirect Investor, Again 09/28/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Financial Services, Private Investment Funds & Advisers.
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JHW Headshot Photo 2016 (M0990045xB1386)A Texas-based retirement fund that does not own any Uber securities sued Uber and its former chief executive officer Travis Kalanick for making misleading statements to investors. The retirement fund claims that it was harmed when the value of its indirect investment in Uber fell after investors learned that Uber was “operating a business far different than what investors had been led to believe.” In the follow-up article to his previously published piece, Attack of the Indirect Investor, private funds attorney Josh Watson outlines yet another case involving a lawsuit by indirect investors, and the consequences for investment managers.

Read Attack of the Indirect Investor, Again. For more information, please contact Josh Watson or a member of our PIFA practice.

SEC Targets Broken Deal Expenses, Again 09/26/2017

Posted by Morse Barnes-Brown Pendleton in Financial Services, Private Investment Funds & Advisers, Venture Capital & Private Equity.
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JHW Headshot Photo 2016 (M0990045xB1386)By: Josh Watson

Private equity firm Platinum Equity Advisors, LLC (Platinum) improperly charged broken deal expenses to three of its private equity fund clients, according to a settlement with the Securities and Exchange Commission on September 21, 2017. The settlement requires Platinum to reimburse its clients for $1.7 million of improper charges and pay a $1.5 million civil penalty.

Platinum advises private equity funds Platinum Equity Capital Partners L.P., Platinum Equity Capital Partners II, L.P., and Platinum Equity Capital Partners III, L.P. These are multi-investor, multi-investment private equity funds that have capital commitments of $700 million, $2.75 billion, and $3.75 billion, respectively. Platinum also forms and advises co-investment vehicles that invest alongside the firm’s private equity funds.

Platinum disclosed to investors that its private equity funds would be responsible for bearing their own broken-deal and other expenses, including “[a]ll out-of-pocket fees, costs, and expenses, if any, incurred in developing, negotiating, and structuring prospective [p]ortfolio [i]nvestments that are not ultimately made.” Platinum also disclosed to investors that it would establish co-investment vehicles that invest alongside its private equity funds.

Platinum’s disclosure of broken deal fees was inadequate, according to the SEC, because Platinum failed to disclose the fact that its private equity funds would bear 100% of all broken deal expenses and that Platinum’s co-investors, who benefit from Platinum’s sourcing of private equity transactions, would bear none of these expenses.

In finding that Platinum’s disclosures were inadequate, the SEC focused on specific statements in the funds’ partnership agreements and private placement memoranda. Each fund’s partnership agreement stated that the fund would be responsible for expenses “of the [p]artnership.” Each fund’s private placement memorandum stated that the fund would pay all expenses “related to its own operations.” The SEC apparently interpreted the references to expenses “of a [p]artnership” and a partnership’s “own expenses” to mean the partnership’s proportionate share of such expenses.

By allocating all broken deal expenses to its private equity funds without adequately disclosing this practice to prospective investors, Platinum violated Section 206(2) of the Advisers Act, which prohibits an investment adviser from engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.

The SEC’s settlement with Platinum does not break new ground. The SEC previously alerted the investment community to its concerns about how firms allocate broken deal expenses in its 2015 enforcement action against Kohlberg Kravis Roberts & Co. The takeaway for managers is that proper advance disclosure is required when a firm client is required to bear a disproportionate amount of expenses related to deals that are never actually consummated.

Read more about the settlement:

https://www.sec.gov/litigation/admin/2017/ia-4772-s.pdf

https://www.sec.gov/litigation/admin/2017/ia-4772.pdf

OCIE Issues Risk Alert on Misleading Advertising Practices 09/22/2017

Posted by Morse Barnes-Brown Pendleton in Financial Services, Private Investment Funds & Advisers.
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JHW Headshot Photo 2016 (M0990045xB1386)By: Josh Watson

The SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a risk alert on September 14, 2017 identifying misleading advertising practices that examiners have found during examinations of registered investment advisers.

The misleading practices identified in the alert are those that are widely-known to be misleading. For example: (1) Presenting performance results on a gross basis, rather than a net-to-investor basis; (2) Presenting profitable investments without disclosing unprofitable investments made during the same time period; and (3) Presenting hypothetical and back-tested performance results without disclosing other information that an investor would need to evaluate the relevance of the results.

The fact that OCIE issued a risk alert on this topic suggests that OCIE may be seeing an uptick in misleading advertising practices. Having now been warned, advisers should evaluate whether their advertising practices comply with regulatory and fiduciary requirements, and whether they have adequate procedures in place to ensure continued compliance with these requirements.

For more information, read the full alert.

Attack of the Indirect Investor 09/21/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Financial Services, Private Investment Funds & Advisers.
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JHW Headshot Photo 2016 (M0990045xB1386)A company’s indirect investors may sue the company and its principals for fraud, according to a recent federal court ruling in Robert Colman et al. v. Theranos Inc. et al. Private funds attorney Josh Watson discusses the case in his article “Attack of the Indirect Investor.” He explains that investment managers who syndicate investment opportunities through single purpose vehicles (SPVs) should be concerned about the ruling because it undermines their control over potential disputes with portfolio companies and their relationships with portfolio company management.

Read the full article on our website. For more information, please contact Josh Watson or a member of our PIFA practice.

Josh Watson Moderating Private Equity and VC Funds Program at ABA Business Law Section Annual Meeting 09/14/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Events, Financial Services, Private Investment Funds & Advisers, Venture Capital & Private Equity.
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JHW Headshot Photo 2016 (M0990045xB1386)At this year’s ABA Business Law Section Annual Meeting, private funds attorney Josh Watson will serve as the program chair and moderator for the program “End of Life Issues for Private Equity and Venture Capital Funds.” The program will be presented by the Private Equity and Venture Capital committee and will cover issues faced by private funds as they approach the end of their life spans. Topics include term extensions, secondary sales, restructurings, and conflicts of interest.

The program will be held this Friday, September 15 at 8am. For more information, view the meeting guide.

Skelmet Creates Custom-Built Sport Sunglasses Using 3-D Technology 09/14/2017

Posted by Morse Barnes-Brown Pendleton in Client News, Computer Software & Hardware, Manufacturing, Retail & Service.
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MBBP client Skelmet’s Falcon 1 sport sunglasses are custom-built to perfectly fit your face and are ideal for athletes. They are created using 3-D scanning and printing technology and Skelmet’s design algorithm. The order process for the glasses includes a 3-D scan of the face, which is then entered into Skelmet’s A.I. Fit design system, after which the glasses are 3-D printed.

Skelmet’s cofounder Rain Wang, a former triathlete, created the company from her growing frustration of the fit of mass-produced sports products. Skelmet mass customizes all of its products so that consumers can find their individual fit.

To learn more about Skelmet’s Falcon 1 sunglasses, read the full article in the Boston Globe.

Carl Barnes Comments on Earnout Disputes in Startup Acquisitions in Wall Street Journal 09/05/2017

Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Life Sciences, M&A.
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CFB Headshot Photo 2015 (M0846497xB1386)The Wall Street Journal article “Rise of ‘Earnouts’ Muddies M&A Waters” discusses the increasing landscape of earnout agreements in startup acquisitions. As the article states, earnout agreements are often used in order to settle differences over a company’s valuation, but are frequently leading to disputes over milestone payments. MBBP corporate partner Carl Barnes remarks that:

Concern about the potential for earnout disputes is leading startups to take proactive measures, such as creating escrow accounts to fund legal battles. Typically, funds for the escrow come off the top of the cash paid up front. If the funds are never used, they are disbursed to shareholders.”

Additional measures involve how the earnout agreements are initially structured and negotiated within the deal. For more information, read the full article.

TechCrunch Names Escher Reality One of of Top 7 Startups at Y Combinator S’17 Demo Day 08/29/2017

Posted by Morse Barnes-Brown Pendleton in Client News, Computer Software & Hardware, Games & Interactive Entertainment.
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TechCrunch named MBBP client Escher Reality one of the top seven startups from the Y Combinator Summer 2017 Demo Day part 1. Y Combinator’s Demo Day is an opportunity for the companies that participated in its intensive pitch preparation program to present their company to investors.

Escher Reality is an augmented reality data platform that collects AR mapping data from camera phone videos and allows other developers to build on the augmented reality experience. TechCrunch picked them as one of their top seven startups because:

AR is becoming the next big trend in consumer software. But the physical world is vast, and both developers and platforms will need assistance getting mapping data for everywhere.”

Congratulations to Escher Reality on this recognition. More information can be found on TechCrunch.

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