Webinar: Structuring Down-Round Financing: Anti-Dilution Protections, Employee Considerations, Mitigating Board Conflicts
Event Dror Futter
1:00 PM - 2:30 PM - EDT, April 20, 2021
This 90-minute webinar in eligible in most states for 1.5 CLE credits.
Presented by Strafford
Why You Should Attend
This CLE webinar 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.
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.
Dror Futter and James C.H. Lee
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. Read more here.
Pursuant to applicable rules of Professional Conduct, this email and linked materials may constitute advertising. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free information about our qualifications and experiences.