Global Startup Blog : Startup Lawyer & Attorney : Reed Smith Law Firm : Corporate Law, Venture Capital

On May 21, OpenTable became the seventh company to complete its initial public offering on the NYSE or NASDAQ in 2009. The company raised approximately $31.4 million, basically split down the middle between the primary and secondary piece of the offering. Interestingly, it was only the second venture-backed company go public on the NYSE or NASDAQ this year – SolarWinds being the first after hanging out in registration limbo for more than a year. Two additional venture-backed companies (Medidata Solutions and LogMeIn) are expected to price in the coming days and weeks.

On the global front, China Zhongwhang Holdings, Asia’s largest manufacturer of aluminum extrusion products, completed its initial public offering on the Hong Kong Stock Exchange in late April, raising approximately $1.3 billion in the process. The deal surpassed Mead Johnson Nutrition, Inc.’s $720 million IPO proceeds by a staggering 80%, making it the largest IPO in the world so far in 2009. I’m not sure what, if anything, all that means for companies looking to go public during the second half of 2009. It is a positive sign that the majority of the companies completing their IPO on the NYSE and NASDAQ are trading above the offering price. Nonetheless, most pundits remain less than optimistic about the IPO window for the foreseeable future.

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I attended the San Francisco Music Technology Summit a couple of weeks ago to talk on a panel about concluding licensing deals with rightsholders. I was pleased to look out from the stage to see a tough, cynical and badly dressed crowd – I knew then that I was speaking to the real digital music industry.

My overall impression of the event was that, despite the usual doom and gloom that we’ve gotten used to this year, it was a fabulously positive event. Some trends were clear:

• There has been a huge growth in the number of services that leverage data to produce recommendations and other results that help drive consumption. The success of these businesses is measured in both an objective and a subjective way, but the overall message seemed to be that they are here to stay and will soon migrate to other areas of the Internet – books, films, television and beyond.
• The legal backdrop for licensing music and content on the Internet is still fraught with difficulty. In the face of this, many new services are trying clever and interesting ways in an attempt to avoid licensing altogether. Almost all of them are doomed to failure – record labels won’t stand for it, and rightly so. However, it’s a shame that they feel compelled to go that route. Licensing music needs to be much easier and laws need to be clearer. And, as I was politely reminded in the bar at the end of the event, there are far too many lawyers in the music business.
• The advertiser-funded content model is being scrutinised closely. In a declining ad market, companies that pursue this option have to do their sums carefully and adapt their service to take full advantage of every single monetisation opportunity to survive. Given that advertising has funded television services for many years, I’m hopeful that the best ad-funded sites can make it work. I am a huge fan of Last.FM, MySpace and Spotify, and want them all to flourish.

From the sunny climes of the West Coast to the rather less sunny weather in London, we are waiting for the release of the UK Government’s Digital Britain report next week. The report will set out what steps ISPs will have to take to assist rightsholders against piracy. The government has been making weaker and weaker promises to the content industries in the run-up to the release of the report. In light of recent legal developments in France, I wonder how far they will go?

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Clean technology continues to be the darling of the investment world, at least in terms of publicity and proclaimed investment focus. The CleanTech Group, along with Deloitte & Touche, recently released a survey of clean technology investments by venture capitalists in North America, Europe, China and India for the first quarter of 2009, and the results may surprise many. According to the survey, first quarter investment in clean technology companies by venture capitalists declined in back-to-back quarters following the third quarter of 2008, to $1 billion--the lowest level of investment in this sector in two years. That isn't surprising based on the status of the U.S. economy during that period. It's also no surprise that investments in solar companies once again led the way. The gap between solar and biofuels, the sector attracting the second highest investment dollars, remains huge, with the former attracting nearly 400 percent more investment dollars than the latter. It will be interesting to see how the American Recovery and Reinvestment Act, and other economic stimulus allocations from the G20 nations, will affect the overall dollar amounts flowing from venture capitalists into clean technology companies over the next four quarters, as well as the breakdown of dollars across the various sectors.

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My partners Rob Dellenbach (emerging company / venture capital group) and Craig Tanner (global equity compensation) recently presented at the Haas School of Business in Berkeley, California. The presentation was geared toward business school students, but the subject is one that should be near and dear to the hearts of all new entrepreneurs – the "Top 10 Formation and Compensation Do's and Don'ts":

• DO create an entity; DON'T assume it must be a C corporation
• DON'T sell Common Stock to investors; DO issue Convertible Notes or Preferred Stock
• DO vest co-founders' stock; DON'T risk co-founder windfall
• DON'T forget Section 83(b) Election; DO file WITHIN 30 DAYS
• DO get written IP assignments and NDAs; DON'T assume you own IP
• DON'T go it alone when hiring employees; DO seek out professional advice
• DON'T take stock awards lightly; DO consider alternatives to options
• DON'T promise "percentages" of equity ownership; DO offer specific stock numbers
• DO professionally value stock option prices; DON'T ignore Section 409A
• DON'T ignore non-U.S. and expat employees; DO think globally

The full presentation is attached for those who are interested. It is a short, 15-slide PowerPoint presentation that is easy to follow and has some great nuggets of information. Feel free to shoot me an email, or you can reach out directly to Rob (rdellenbach@reedsmith.com) or Craig (ctanner@reedsmith.com) if you have any questions.

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The Silicon Valley Association of Startup Entrepreneurs (SVASE) held its monthly CXO Leadership Forum at our office yesterday. The topic was M&A and the panel included one representative from Ridgecrest Capital Partners, a boutique investment bank, and three corporate development professionals from technology powerhouses Microsoft, Cisco and Symantec. 

The lunchtime discussion was full of useful information for entrepreneurs. For example, the in-house folks shared with the audience that the overwhelming majority of the deals that they do are with companies that they have known for one-year, if not significantly longer. That was true for all three companies. Entrepreneurs should, therefore, find ways to get in front of both the corporate development folks and the key players in the appropriate business units of potential acquirers early and often. Keep in mind when meeting with potential acquirers, such as Microsoft, Cisco and Symantec, that the typical model is to fully integrate the acquired company, so the fit between the respective teams is a critical element. That is one of the most often overlooked aspects of getting a deal done, according to the panel.

Gary Moon, of Ridgecrest Capital Partners, also gave an excellent market overview for the audience. As expected,  Gary's presentation showed a decline in the number of deals and significant compression in valuation in 2009 compared to the same period in 2008. He made the point, however, that the markets appear to be stabilizing, which, if true, should have a positive impact on M&A activity over the next several quarters. 

The SVASE CXO Leadership Forum is held monthly at our Silicon Valley offices. SVASE does a great job of keeping these events small (25-30 people sitting around a table talking with the panelists) so there is a very intimate and interactive atmosphere in the room. I highly recommend attending one of the upcoming events.

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