Earlier this month, I expressed disapproval over a proposed repeal to the federal preemption of state laws regulating securities offerings under Regulation D. Basically, I said that the current system works fine, and the proposed change would make it more difficult for startups to raise capital across state lines. In response, a reader sent over the following:
“But shouldn’t you mention that you have a conflict of interest, since a centralized repository of filings helps the press (but most particularly you and VentureBeat) to report on financings that used to be hidden from public view? You question Dodd’s motivation for repealing the Reg D requirement but don’t mention your motivation for wanting that centralized repository?”
First, my objection was not based on self-interest. As you may (or may not) recall, I actually supported the creation of the centralized electronic depository, even though it was better for peHUB that the Form D filings remain in paper form (since my corporate overlords had someone at SEC HQ who scanned them into a fire-walled database, thus giving us near-exclusive access).
But my goal this morning is not to reply to a single reader. Instead, it’s to share a little secret with you that is so outside of my self-interest that it may cause consternation among me peers. Here goes: Many VC-backed startups do not need to file Form Ds with the SEC.
For those interested in the legal technicalities, here is how one attorney explained it to me:
Filing a Form D in a typical venture transaction takes advantage of the “safe harbor” under Rule 506 of the securities laws. This means that by meeting the requirements of Rule 506 (including filing a Form D), the Company issuing securities is sure it satisfies the requirements for an exemption from registration under the ’33 Act. Rule 506 is a subset of the exception under Section 4(2) of the ’33 Act. However, Rule 506 is not the only way to satisfy Section 4(2) – which is premised on the sale not being a public offering. Section 4(2) may be satisfied without filing a Form D, it is just more conservative to comply with Rule 506.
In layman’s terms, this means that filing a Form D is largely an exercise in CYA – so long as a company has raised its capital from accredited investors. For example, imagine Primack Corp. is a content startup that recently raised $5 million in Series A funding from Benchmark Capital and Ron Conway. Moreover, it is in stealth-mode for strategic reasons. So long as my company’s attorneys believe we satisfy Section 4(2) – and could defend that position if asked – then there is no compelling reason to file a Form D.
This, of course, prompts a question about why any company would file a Form D. First, some companies don’t mind letting the world know about their funding, or perhaps even want the publicity. Moreover, I’m told that best practice is to file if:
(a) A company has plans to go public anytime soon, since it helps streamline the process; (b) If a company has raised money from more than 10 accredited investors, just because it can get messy otherwise; (! c) A company has raised a goodly portion of its funding from non-professional investors like Uncle Sal, because those investors may have a put if the deal is later deemed to not be a legit private placement (we’re assuming Uncle Sal runs into financial troubles and is looking for a way out).
All of that said, I do hope you continue filing those Form Ds. But, if not, I wouldn’t blame you…
*** Senator Chris Dodd yesterday unveiled the latest version of his financial regulatory reform bill which, if passed, would have implications for the VC/PE community (despite some media suggestion to the contrary). I posted all the salient points here.
One quick thing it’s worth noting: In a section about fund registration, Dodd writes that the SEC will be responsible for defining “venture capital” and “private equity” funds, as different from one another (and, more importantly, as different from “hedge” funds). In a latter section about the so-called Volcker Rule, however, Dodd only refers to “private equity” and “hedge” in terms of the type of funds that banks would be prohibited from sponsoring. As such, it seems to me that a Goldman Sachs actually would be allowed to manage a VC fund-of-funds or direct VC investment group… Oversight, or successful VC industry lobbying?
Financial Engines, a Palo Alto, Calif.-based provider of technology-enabled portfolio management and investment services, raised $127.2 million in its IPO. The company priced 10.6 million shares at $12 per share (above its $9-$11 per share range). It will trade on the Nasdaq under ticker symbol FNGN, while Goldman Sachs served as lead underwriter. Shareholders include Foundation Capital (17.4% pre-IPO stake), New Enterprise Associates (14.4%) and Oak Hill Capital Partners (9.3%).
Cinven has agreed to acquire French medical diagnostics company Sebia from Montagu Private Equity. The deal valued Sebia at around €800 million, including debt, or 12x 2009 earnings.
The California State Teachers’ Retirement System (CalSTRS) has named Margot Wirth as its new head of alternative investments, peHUB has learned. The position had been empty since early last year, when longtime alternatives chief Réal Desrochers resigned. Wirth and Seth Hall — both private equity portfolio managers — had been serving as interim co-heads.
NGM Biopharmaceuticals Inc., a South San Francisco-based drug startup focused on metabolic diseases, has secured the first tranche of a $51 million Series B funding round. Backers include The Column Group, Tichenor Ventures, Prospect Venture Partners and Rho Ventures. The company previously raised $25.55 million.
Cheetah Medical, a developer of noninvasive hemodynamic an! d cardiac output monitoring technology, has raised $20 million in Series B funding. Ascension Health Ventures led the round, and was joined by Robert Bosch Venture Capital, MVM Life Science Partners and undisclosed return backers. The company is based in Israel, with a U.S. office in Portland, Oregon.
Tarpon Towers LLC, a Bradenton, Fla.-based wirelesscommunications towercompany, has raised $15 million in private equity funding from Spire Capital Partners. Tarpon has now raised over $50 million in equity funding — including from existing backer ABS Capital Partners -! – and a $30 million bank facility.
Promedior Inc., a Malvern, Penn.-based developer of therapeutics for inflammatory and fibrotic diseases, has raised $12 million in Series C funding. Forbion Capital Partners led the round, and was joined by return backers Morgenthaler Ventures, HealthCare Ventures, Polaris Venture Partners and Easton Capital. The company has now raised $27 million in total VC funding.
Correlsense, a developer of business transaction management solutions, has raised $8 million in Series B funding. Accel Partners led the round, and was joined by return backers Vertex Venture Capital, eXceed Technology and ProSeed Ventures. The company previously raised $3 million.
BrightEdge, a Foster Cit! y, Calif.-based provider of on-demand search engine optimization (SEO) management solutions, has raised $6.5 million in Series B funding. Battery Ventures led the round, and was joined by return backers Altos Ventures and Illuminate Ventures.
Agile Energy Inc., a San Bruno, Calif.-based developer of utility-scale renewable power generating projects, has raised an undisclosed amount of Series A funding from Good Energies.
GI Partners has sponsored a recapitalization of AdvoServ, an operator of residential group homes and related education programs for the treatment of individuals with intellectual and developmental disabilities and severe behavioral challenges. No financial terms were disclosed.
GTCR has acquired Athletic & Therapeutic Institute, an Illinois-based operator of 44 outpatient physical therapy centers, from KRG Capital Partners and Norwest Mezzanine Partners. No financial terms were disclosed. peHUB reported on the deal earlier this month.
KKR is leading a deal to invest around 10 billion rupees ($219.5m) into the owner of Indian coffee chain Café Coffee Day, according to Reuters. Other participant! s in the deal would include Standard Chartered Private Equity and New Silk Route.
RDG Capital reportedly has offered to buy Japanese-themed restaurant Benihana Inc. (Nasdaq: BNHN) for $7 per share, according to the New York Post. The offer would value Benihana at around $20.1 million, and represents a premium to yesterday’s closing price of $5.88 per share.
Siemens AG has abandoned plans to sell its hearing aid unit, after bids came in lower than the company had expected. Siemens had been hoping for minimum bids of €2 billion.
BroadSoft Inc., a Gaithersburg, Md.-based provider of VoIP application software to the telecom industry, has filed for a $103.5 million IPO. It plans to trade on the Nasdaq under ticker symbol BSFT, with Goldman Sachs and Jefferies & Co. serving as co-lead underwriters. Broadsoft has raised around $76 million in total VC funding since 1998, from firms like Bessemer Venture Partners (23.3% pre-IPO stake), Grotech Ventures (12.6%), Charles River Ventures (12.5%), Columbia Capital (9.1%), RRE Ventures (6.7%), Crescendo Ventures and Meritech Capital Partners.
MagnaChip Semiconductor LLC, a South Korean maker of analog and mixed-signal semiconductor products for high-volume consumer applications, has filed for a $250 million IPO. It plans to trade on the NYSE under ticker symbol MX, with Goldman Sachs, Barclays Capital and Deutsche Bank Securiti! es serving as co-lead underwriters. The company previously filed for a $575 million IPO in late 2007, but later pulled the offering due to “unfavorable market conditions.” It would later file for Chapter 11 bankruptcy, wiping out shareholders Citigroup Venture Capital, CVC Asia Pacific and Francisco Partners. Avenue Capital Group currently holds a 70.3% ownership stake.www.magnachip.com
Mirion Technologies Inc., a San Ramon, Calif.-based provider of radiation detection services, has more than doubled its IPO target to $202.4 million. It also says it plans to offer 11 million common shares. The company originally filed last August to raise $100 million. It stillplans to trade on the Nasdaq under ticker symbol MION, with Credit Suisse, BoA Merrill Lynch and J.P. Morgan serving as co-lead underwriters. The company is currently owned by American Capital. www.mirion.com
RMG Networks, a place-based video entertainment company, has acquired Pharmacy TV, an in-store narrowcast media network for pharmacy retail chains. No financial terms were disclosed. RMG Networks is a portfolio company of Kleiner Perkins and National CineMedia LLC, while Pharmacy TV had raised a small amount of funding from Nueva Ventures.
RoundBox Inc., a Florham Park, N.J.-based provider of mobile broadcast software,has acquiredthe assets of Jacked Inc., a Santa Monica, Calif.-based provider of media interactivity solutions. No financial terms were disclosed. RoundBox has raised $43 million in VC funding from Montagu Newhall Associates, ITOCHU Techno-Solutions Corporation and return backers Core Capital Partners, Polaris Ventur! e Partners and RRE Ventures. Jacked had raisednearly $8million from Core Capital Partners, Gabriel Venture Partnersand Provenance Ventures.
Senior Care Centers of America, a Clearview Capital portfolio company, has acquired Wilkes-Barre, Penn.-based Valley Crest Adult Day Care. The transaction closed on January 8, and is the fifth acquisition made by Senior Care since Clearview Capital’s initial investment in 2005.
Champ Private Equity, the Australian affiliate of Castle Harlan, plans to sell nursing and aged care staffing business Healthcare Australia (HCA) via either a trade sale of public offering. HCA is believed to have an enterprise value of approximately A$350 million.
Firms & Funds
Elevar has raised $70 million for a “poverty-focused” growth equity fund focused on underserved markets like India, Mexico, the Philippines and Peru. It will back microfinance institutions and other providers of essential services.
The Sterling Group has closed its third fund with $820 million in capital commitments. The Houston-based firm focuses on mid-market private equity opportunities, and had closed its prior fund with $470 million in 2005.
Gina Bianchini is stepping down as CEO of Ning, in order to become an entrepreneur-in-residence with venture capital firm Andreessen Horowitz. Bianchini is a co-founder of Ning, which offers an online platform for people who want to create their own social networks. Her fellow co-founder, and Ning chairman, is Marc Andreessen, who is one of two Andreessen Horowitz partners. She will be succeeded by Ning CFO Jason Rosenthal.
Mark Epley is stepping down as global head of financial sponsors at Deutsche Bank, according to Bloomberg. He reportedly plans to join Nomura Holdings.
Mark Pacala has joined Oak Hill Capital Partners as a senior advisor, with a focus on the healthcare sector. He has spent the past eight years as a general partner with Essex Woodlands Health Ventures. Before that, he ran both the Forum Group (sold to Marriot Corp) and American WholeHealth Inc.
Holger Reithinger has joined Forbio n Capital Partners as a partner and head of the firm’s new Munich office. He previously was with Global Life Science Ventures.
Antonio Rodriguez, former CTO of HP’s consumer imaging and printing division, has joined Matrix Partners as a general partner in the firm’s Waltham, Mass. office. Matrix also announced the opening of a New York City office, which will be headed by Nick Beim. Beim will relocate from Massachusetts.
Jon Skelly has joined Cleveland-based boutique bank Vetus Partners as a man! aging director. He previously focused on the wholesale distribution sector of PCE Investment Bankers, before which he served as a director of business development for Home Depot and director of M&A for Hughes Supply Inc.
Garrett Walls has agreed to join Angelo Gordon & Co. as head of marketing. He previously was with TCW Group, as a managing director responsible for strategic relationships.
Key Principal Partners, a lower middle market private equity firm based in Cleveland, has promoted Patrick Rond to vice president. Rond joined the firm, in 2002 as an analyst. KPP is the private equity arm of KeyCorp.