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3(c)(1) Funds vs. 3(c)(7) Funds
The process of starting a new hedge fund or private equity fund involves choosing whether the fund will be structured as a “3(c)(1) fund” or a “3(c)(7) fund.” Many new fund managers are confused by the...
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What Do Startups Need to Know About Data Privacy Law?
It’s hard to imagine a startup that does not collect some form of sensitive information in digital form, and the collection, use, and disclosure of such information is regulated under federal, state,...
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Using Side Letters in Private Funds
At some point while raising capital for a private fund, you will likely be asked by one or more potential investors to enter into a side letter. A side letter is an agreement between the fund and one...
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The Legal Pitfalls of Rewards-Based Crowdfunding Campaigns
Rewards-based crowdfunding sites, such as Kickstarter and IndieGoGo, have become a common way to get innovative businesses and products off the ground. The premise behind these crowdfunding sites is...
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Intro to Private Equity Funds
A private equity fund is an investment entity formed by an investment adviser (often also referred to as a fund manager or sponsor), that raises capital from investors to make investments in private...
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Is New York’s Form 99 Required When a Rule 506 Offering Has New York Investors?
The vast majority of private companies raising capital use Rule 506 of Regulation D, which, if complied with, ensures the securities being sold are exempt from registration with the Securities and...
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The Venture Capital Adviser Exemption Explained
Section 203(l) of the Investment Advisers Act of 1940 (the “Advisers Act”), also known as the venture capital adviser exemption, provides that an investment adviser that solely advises venture capital...
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The Different Meanings of the Word “Registration” for Private Funds
One of the first questions that new private fund advisers often ask me is whether they will need to “register” with the SEC. They are often thinking in terms of registration as an investment adviser....
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Handling Trade Errors: Best Practices for Private Fund Advisers
New investment advisers are typically focused on creating marketable investment programs and raising capital. Legal matters are often delegated to outside counsel and the adviser’s investment in...
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Verifying Accredited Investors in a Rule 506(c) Offering
Companies raising capital that are relying on Rule 506(c) (often informally called “Accredited Investor Crowdfunding”) for their offering of securities have several options as to how to verify whether...
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Dos and Don’ts of Conducting a Rule 506(b) Offering
When raising capital, a company must comply with securities laws. As previously discussed, all offerings of securities, must either be registered with the SEC or exempt from such registration. Rule...
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Why Startups Use Convertible Notes
For the past 10 years or so, founders of early-stage startups have been increasingly turning to convertible notes and convertible equity instruments to structure investment rounds, particularly for...
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SEC Updates Definition of Accredited Investor
On August 26, 2020, the Securities and Exchange Commission (“SEC”) issued a press release indicating that it had adopted amendments to the definition of “accredited investor.” The amendments, among...
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What is a Private Placement Memorandum?
A Private Placement Memorandum, or “PPM,” is a disclosure document often used in connection with a private offering of securities. It contains a compilation of information about the company issuing...
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Understanding the Key Features of a Convertible Note Offering
Now that we have considered the principal reasons a startup may choose to issue convertible notes to investors in lieu of selling shares – namely, to raise capital efficiently and without a fixed...
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The New Integration Framework under the Securities Act Gives Companies...
Previously announced amendments to the Securities and Exchange Commission’s exempt offering rules went into effect on March 15, 2021. As per the SEC, the rule changes are intended to “harmonize,...
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Summary of the SEC’s New Proposed Rules Impacting Private Funds
On February 9, 2022, the Securities and Exchange Commission (SEC) proposed a significant expansion to the regulations covering private funds advisers. The new proposed rules are the most significant...
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SEC Proposes Overhaul of Cybersecurity Regulations for Private Fund Advisers
On February 9, 2022, the Securities and Exchange Commission (SEC) issued a new proposed rule that would overhaul the cybersecurity regulations for registered investment advisers, registered investment...
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The Corporate Transparency Act Will Have a Large Impact on Startups
Passed by Congress on Jan. 1, 2021, as part of the National Defense Authorization Act of 2021, the Corporate Transparency Act (the CTA; codified in 31 U.S.C. § 5336) requires certain businesses formed...
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