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Webinar: Structuring Down-Round Financing: Anti-Dilution Protections, Employee Considerations, Mitigating Board Conflicts

Events Webinar: Structuring Down-Round Financing: Anti-Dilution Protections, Employee Considerations, Mitigating Board Conflicts Dror Futter Monday, March 6th, 1:00 pm EST

Rimon Partner Dror Futter will be co-presenting a webinar Monday, March 6th 1:00pm-2:30pm EST. This CLE course will analyze down-round financings from the vantage point of the company and its investors. The panel will discuss the implications of a down round for employees and existing stockholders, board fiduciary and process issues, and technical and structuring considerations.

Description

The current economic environment has required many startups to seek down-round financing, in which the company has a reduced valuation from its prior financing round. Down rounds have important implications for employees and existing investors and can involve complex structuring concerns. Boards and controlling shareholders must consider any conflicts of interest and the risk of shareholder actions in response to such financing.

Stock options or other equity awards are important tools for retaining key personnel. Down-round financing reduces the value of employee stock awards and the prospects for a profitable exit. Boards may need to consider additional equity awards or a management carve-out plan to prevent key employees from departing.

Directors have a fiduciary duty to their shareholders and may have conflicts of interest, resulting in litigation from shareholders or creditors negatively impacted by the down round. To mitigate this risk, a board might consider the appointment of an independent committee to evaluate the proposed transaction, a disinterested stockholder vote, or a rights offering for existing shareholders.

Down-round financing may be further complicated by anti-dilution provisions in favor of preferred shareholders, which may allow them to receive a more favorable conversion rate and enhanced voting rights due to the new round of investment. Before proceeding, the parties will need to determine when a conversion occurs and how it will be documented.

Listen as our authoritative panel discusses these and other nuances of down-round financings.

Outline

  1. Downround financing and its impact on existing investors
  2. Board fiduciary duties: mitigating risk of shareholder suits
    1. Independent committee
    2. Vote of disinterested shareholders
    3. Rights offering
  3. Addressing employees with devalued stock awards and options
  4. Structuring issues
    1. Anti-dilution protections
    2. Redemption rights
    3. Pay-to-play options

Benefits

The panel will review these and other significant issues:

  • How might down-round financing affect existing employees who hold company stock?
  • Given the potential board conflicts inherent in down-round financing, what can the board do to mitigate against the risk of shareholder actions?
  • What are the different types of anti-dilution provisions, and how do they impact the financing structure?

Register Here

Dror Futter focuses his practice on startup companies and their investors, and has worked with a wide range of technology companies. His fifteen years’ experience as in-house counsel includes positions with Vidyo, Inc., a venture-backed videoconferencing company, and New Venture Partners, a venture fund focused on corporate spinouts. Prior to that, Mr. Futter was Counsel to the CIO of Lucent Technologies, as well as supporting parts of its sourcing organization.​  Mr. Futter has represented companies and venture funds in numerous equity and debt financing rounds, from early “friends and family” and Seed rounds to later-stage mezzanine financings, and has been on both sides of the table in these transactions. On the corporate side, he routinely handles corporate formations, employee equity plans and mergers and acquisitions. Mr. Futter has also been involved in over 40 corporate spinouts and understands the unique concerns of corporate venture investors.​ Mr. Futter is the Co-Chair of the Practicing Law Institute’s Blockchain Law Seminar and has published and spoken extensively on blockchain related subjects.   He has advised a leading crypto-hedge fund on the structuring of their credit facilities and other hedging related agreements and advised the creator of a travel industry blockchain consortium.  Mr. Futter serves as a mentor to the IBM-Columbia Blockchain Accelerator.​

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