Louis Lehot

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Louis Lehot on the Rise of Central-Bank Digital Currencies

The Bitcoin rollercoaster has brought a lot of attention to cryptocurrencies over the past year, but you still can’t pay your taxes with them. Aside from some state-level moves to accept cryptocurrencies, taxes must still be paid in the U.S. dollar. And yet, as more businesses go through their own digital transformations, many have been wondering when the economy will experience its own digital paradigm shift.

The idea of a digital dollar is not new. Digital currencies have been discussed for decades, and some even argue that the dollar is already digital. There is merit in that characterization. Most of the money in the U.S. money supply is not cash — what consumers generally consider money to be — but debt-backed derivatives of cash deposits. Since those dollars exist digitally, the dollar already is essentially a digital currency. But the recent discussions of a digital dollar revolve around creating a federally backed central-bank digital currency (CBDC).

CBDCs share some technological characteristics with cryptocurrencies, but they differ in organizational structure. CBDCs are by definition centralized, meaning that the issuer of the currency has direct control over it. In recent years, there has been more talk of CBDCs, particularly as China has pushed to become the first major issuer of a CBDC. (The Bahamas has the distinction of issuing the first CBDC — the Sand Dollar.)

China’s experiment with a digital yuan has sparked both governmental and private-sector discussions of the merits and risks associated with CBDCs. One common concern with the digital yuan is the increased control that it gives to the Chinese government. Some view this control as a threat to the West, and the fear of lagging behind technologically seems to have spurred many countries to consider issuing their own CBDCs, with about 80% of central banks now open to the possibility. In the U.S., both Janet Yellen (secretary of the Treasury) and Jerome Powell (chairman of the Federal Reserve) have expressed interest in a digital dollar. Expect to hear more concrete news this summer.

Any digital-dollar initiative would likely require action from Congress, and it would also trigger a host of legal questions. For example, how would people acquire accounts? If accounts were tied to banks, the digital dollar would work only for those with bank accounts. As of 2019 (the latest data available from the government), 5.4% of U.S. households are unbanked. While that percentage is small and has been declining over the past decade, it still encompasses 7.1 million households. Would those people be prohibited from using a digital dollar?

If the digital dollar were not tied to bank accounts, the government would have direct control over transactions, which would lead to privacy concerns while also threatening the traditional banking industry. As Bloomberg reported in March, the American Bankers Association believes that a digital dollar “is a costly solution in search of a nonexistent problem,” while credit-card companies are trying to make sure that they would not be cut out of any proposed CBDC

The long-term effects on businesses are difficult to predict given the lack of concrete information at the moment. But as with any paradigm shift, there likely will be unforeseen consequences. Pay attention to developments in this space.

Louis Lehot Bio: 

LOUIS LEHOT is an EMERGING GROWTH COMPANY, VENTURE CAPITAL, AND M&A LAWYER at FOLEY & LARDNER in Silicon Valley. Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from garage to global. He focuses his efforts on technology, digital health, life science, and clean energy innovation. Louis’s clients are public and private companies, financial sponsors, venture capitalists, investors, and investment banks, and he has helped hundreds of companies at formation, obtaining financing, solving governing challenges, going public, and buying and selling. LOUIS is PRAISED by clients, colleagues, and industry guides for his business acumen, legal expertise, and leadership in Silicon Valley.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensch

Louis Lehot on Data Driven Investor

Louis Lehot on Chamber

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Louis Lehot | Trusted Corporate and M&A Lawyer

Protective Provisions: Companies should consider the protective provisions to be given to new investors, and understand those held by their current shareholders.

Louis Lehot says, it's very important to understand what level of investor approval is required for key actions., A company's management will need to be able to work collaboratively with the company's investors to approve future financings or a sale of the company, but potentially also on a series of corporate actions like hiring, firing, compensation, borrowing and other key business decisions. Among the existing shareholders, the level of approvals required by a protective provision is critical for a founder team to understand.

Economic Rights: It is also paramount to understand the investors' economic rights: A fundamental theory underlying the preferred stock structure of venture capital investing is that in connection with a sale of the company, the investors will receive their money back before common stockholders receiving anything in exchange for their shares. Louis Lehot advises clients to ask key questions: does a series of preferred stock also have a dividend that accrues? A liquidation preference? Are they either compound or cumulative? Do they double-dip by participating? Does the liquidation preference return a multiple of the original issue price? These are all points that could vastly change who gets what upon exit.

Intellectual Property: In all early-stage companies, there must be a transparent chain of title to that IP from origination to ownership. Intellectual property litigation is rampant, says Louis Lehot, and it would be wise to do your diligence and confirm you are not infringing on any third-parties intellectual property.

Contracts: Your agreement doesn't have to be in writing to be enforceable. However, it would be smart to ensure that all of your material agreements are in writing, contain all essential terms, and are executed by all involved parties. These agreements include vendor and supply agreements, guarantee terms, and employment agreements.

The golden rule, ask for legal help if you are unsure of what issues the contract raises,, says Louis Lehot.

Regulatory Issues: Regulatory challenges from state and local governments can become show stoppers. Before making an investment, investors will want to ensure that your business plan is not endangered due to regulatory concerns.

Seeking legal counsel at the onset of your venture, can help to identify any potential regulatory issues and confirm that such regulatory matters will not adversely impact your business model, says Louis Lehot.

Louis Lehot Bio: 

LOUIS LEHOT is an EMERGING GROWTH COMPANY, VENTURE CAPITAL, AND M&A LAWYER at FOLEY & LARDNER in Silicon Valley. Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from garage to global. He focuses his efforts on technology, digital health, life science, and clean energy innovation. Louis’s clients are public and private companies, financial sponsors, venture capitalists, investors, and investment banks, and he has helped hundreds of companies at formation, obtaining financing, solving governing challenges, going public, and buying and selling. LOUIS is PRAISED by clients, colleagues, and industry guides for his business acumen, legal expertise, and leadership in Silicon Valley.

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LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensch

Louis Lehot on Data Driven Investor

Louis Lehot on Chamber

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Louis Lehot on Virtual Dealmaking and the Return to Work

Over the last year, the pandemic upended many industries, prompting businesses to pivot quickly to enable a fully virtual everything, from workplace to marketplace to nearly every aspect of life. Even the legal profession, which historically has been slow to adopt technology, is now starting to catch up to other industries by embracing digital transformation. The results in the startup world have been similar to those seemingly everywhere else. In-person meetings have been scrapped in favor of virtual meetings. Travel has been replaced by videoconferencing. Paper has been replaced by bits and bytes. While the tech industry is starting to return to normal, how much the new normal will be like the old is still an open question. At the same time, increased reliance on technology is changing the trajectory of virtual deal making.

The rapid virtualization of many business functions has had a number of unintended consequences. On the one hand, for startups and investors, virtual deal making has become commonplace, which has changed the dynamics of raising capital and investing. One startup CEO noticed that compared to pitching in person, virtual deal making had a heightened focus but found that “it allowed for more robust conversations and data sharing over a shorter period of time.” This pattern has been common since COVID-19 pushed so many meetings into cyberspace, but it also particularly complements high-resolution fundraising, allowing startups to connect quickly with more investors than ever before.

 By driving faster connections and more pitches, these virtual meetings seem to be working well for the industry. Despite the pandemic, 2020 was a banner year for venture capitalists, with a record-setting $130 billion invested in over 6000 deals.

But on the other hand, virtual deal making has some significant drawbacks. Many people across all industries are tired of videoconferencing. We even have a genericized term for that now: “Zoom fatigue.” As Stanford University noted, virtual meetings face significant challenges compared to in-person meetings, specifically relating to cognitive load, a lack of movement, and too much screen time.

Where will the industry go from here? As businesses open up more and travel becomes more normalized again, in-person deal making will probably stage a staggered return. Many people prefer them, so they will always be good fits for some. But given the changes in the past year and the benefits that many saw from faster pitch cadences, startups and investors will probably continue making deals virtually, almost certainly more than they did back in 2019 and prior, which leaves a big question about addressing the challenges of virtual meetings.

Companies have delivered annual and quarterly financial returns with a largely steady topline and bottom line benefiting from elimination of the travel and entertainment budget. With the economy returning to work, spending on travel and entertainment will return, but at what pace and in what quantum? Will cost savings be retained when growing the topline with a workforce back at full capacity?

I’ll end with one possible (and admittedly speculative) solution, at least in part. For many years, dating back at least to the 1990s and the early days of stereoscopic video games, virtual reality (VR) has been touted as the next big thing. And yet, even the 3D-television craze several years ago and the rampant interest in VR headsets has not led to significant adoption. While we may see VR find a place in high-level business meetings, augmented reality (AR) appears better positioned to make significant inroads.

New augmented reality technologies that enable meeting participants to not only see each other and share documents, but immersively view, manipulate and interpret data together in an augmented, three-dimensional or phygital world, could be a game changer. For a sneak view of what an augmented reality, augmented data analytical world would look like, check out what our friends at Flow Immersive are building here, or the “phygital” worlds built for clients of Double-A Labs.

 AR could enable virtual meetings while also providing more natural interactions than staring at a screen would allow. Maybe bridging the gap between the virtual and real worlds would be enough to address the fatigue that so many feel with virtual meetings.

 The ability to have more natural interactions with clients, business partners, investors, and lawyers without the cost (or risk) of travel could be a major deciding factor to pushing AR meetings into the mainstream. A number of companies are working on related technologies, so the question is who will make it work first. Maybe someone will come up with an entirely different and vastly superior solution. Time will tell.

This article was republished with permission at VentureBeat.com.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensc

Louis Lehot on Data Driven Investor

Read the Articles written by LOUIS LEHOT:

LOUIS LEHOT- What to expect for seed and pre-seed stage financing in 2021

LOUIS LEHOT- A Brief Legal Guide To Buying And Selling Shares Of Private Company Stock

LOUIS LEHOT- The IPO Markets Are Changing, And So Is The Lock-up Agreement

LOUIS LEHOT- What are SPACs, and how they are different from IPOs?

LOUIS LEHOT- L2 Counsel Represents AgTech Leader FluroSat In Dagan Acquisition

LOUIS LEHOT- Considering Selling Your Company? Be Clear on Your Fiduciary Duties

LOUIS LEHOT- Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet Soup

LOUIS LEHOT- Ready To Sell Your Startup In 2021?

LOUIS LEHOT- The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s Next

LOUIS LEHOT- Leaving Your Job? Don’t Forget Your Stock Options…

LOUIS LEHOT- A Short Primer for Startups on Local Labor and Employment Law Compliance

LOUIS LEHOT- How To Clean Up A Corporate Mess

LOUIS LEHOT- Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic

[louis-lehot01]

Louis Lehot on Startup and Venture-Capital Investing in the Post-COVID Era

When the pandemic first hit the U.S. economy, many experts anticipated a decided pullback from comparatively risky investments like startups. Crunchbase reported in March of 2020 that “If past cycles are any guide, we can expect a sharp startup funding slowdown in coming months.” The Harvard Law School Forum on Corporate Governance concluded that “Investors and companies must be prepared to address and negotiate new or reemerging terms as investors seek to de-risk their investments and companies seek financing alternatives in response to rapidly changing market conditions.” Counterintuitively, outside of the travel and hospitality sectors, 2020 failed to usher in the “black swan” moment that had been proclaimed. As we move into spring in 2021, it feels decidedly 1999ish in technology, digital health and life science startups and investing.

Today, as businesses and schools begin preparing for a full scale reopening, we are entering the post-COVID era, but the startup landscape is not the same as it was in 2019 or 2020. Entrepreneurs and investors should take note: the rules of the game have changed, and are unlikely going back to the way they were.

Radical changes can create radically new opportunities, and new opportunities are a gold mine for investors. Despite the Q1 and Q2 pullbacks in the number of deals, 2020 still saw a record amount of VC funding. According to MoneyTree, VC investments reached $130 billion in 2020—a new record—with over 6000 deals. Internet startups were by far the largest vertical for funding last year. Healthcare was a distant second, followed by mobile and telecommunications and then other software.

With the rollout of coronavirus vaccines hitting full steam in the United States, the new $1.9 trillion 2021 federal stimulus program (on top of the $2.5T+ in 2020 federal stimulus programs) and “easy money” policies prevailing at the Federal Reserve (with the Fed’s balance sheet expanding by $8T+), things have gotten decidedly frothy in 2021. Crunchbase reported that January 2021 venture capital funding reached an all-time monthly high, with $39.9 billion in new funding, and then stayed steady at $35B in February. Sectors attracting the most attention were delivery, robotics, logistics, automotive, fintech, and cloud computing.

Pre-seed and seed deals have hit record levels, redefining the categories. While “early stage” in tech once meant being the first money into a company, it now refers to investing after a product has been developed, tested, entered commercial shipment, and demonstrated sufficient product-market fit to merit scaling capital, with some minimum amount of monthly recurring revenues. Seed capital, once the province of “Series A” investors, now refers to a new category of business angels and entrepreneur-funded “scout” funds that looks for companies with revenue. For entrepreneurs who have never raised capital before and have not yet developed a minimum viable product, the universe of “pre-seed” funding is probably with friends and family, and for the lucky ones, a university laboratory, an accelerator, incubator or government grants.

Once upon a time, pre-seed and seed deals were funded with heavily negotiated convertible note rounds and series seed preferred stock. Today, they are largely documented by one of four “simple agreement for future equity” templates posted on the Y Combinator website. The process has been “democratized” and decentralized, and while the bulk of venture capital continues to go into Silicon Valley based companies, the pandemic has totally distributed the workforce to the four corners of the world.

To some extent, the outsized funding of Internet startups and then healthcare simply parallels public sentiment during the pandemic, waves of shutdowns and resurging recovery. Everyone has been coping with how to handle work, school, and life from home, and healthcare provided a consistent backdrop. The real question today is whether those trends will continue into the next few years.

To answer this question, consider the trajectories of the Internet and healthcare. FlexJobs, a service that aggregates postings of remote jobs, lists several major and emerging companies that are either switching to a remote-first workforce or allowing employees to work remotely even after pandemic restrictions are lifted. Amazon, Microsoft, Facebook, and Twitter are on the list, as are Coinbase, Square, and Slack. This trend dovetails nicely with the longstanding trend of digital transformation. Other consequences aside, the pandemic seems to have accelerated the digital transformations of many companies, and that acceleration includes healthcare as well.

Could investors tire of Internet and healthcare startups? Maybe. The massive interest driven by the pandemic could have created a bubble, but again, the spike in VC investments in these fields was not driven solely by the pandemic. If your startup falls within one of these hot fields, you may still be well positioned to attract investors in the next few years.

Investors will want to see that your company can compete effectively with social distancing and pandemic-related changes to spending habits, and virtual meetings are commonplace. Make sure that your business model and your pitch work effectively within the new normal.

Despite all the changes in the last year, the basics of making a deal are essentially the same. Starting a new company is difficult in any setting, and today is no different. But with the right ideas, the right plan, and a bit of tenacity, you can build opportunities from even these unprecedented and challenging circumstances.

Louis Lehot is an emerging growth company, venture capital and M&A lawyer at Foley & Lardner in Silicon Valley. Louis Lehot spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from garage to global. He focuses his efforts on technology, digital health, life science and clean energy innovation. Louis’s clients are public and private companies, financial sponsors, venture capitalists, investors and investment banks, and he has helped hundreds of companies at formation, obtaining financing, solving governing challenges, going public and buying and selling. Louis Lehot is praised by clients, colleagues and industry guides for his business acumen, legal expertise and leadership in Silicon Valley.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensc

Louis Lehot on Data Driven Investor

Read the Articles written by LOUIS LEHOT:

LOUIS LEHOT- What to expect for seed and pre-seed stage financing in 2021

LOUIS LEHOT- A Brief Legal Guide To Buying And Selling Shares Of Private Company Stock

LOUIS LEHOT- The IPO Markets Are Changing, And So Is The Lock-up Agreement

LOUIS LEHOT- What are SPACs, and how they are different from IPOs?

LOUIS LEHOT- L2 Counsel Represents AgTech Leader FluroSat In Dagan Acquisition

LOUIS LEHOT- Considering Selling Your Company? Be Clear on Your Fiduciary Duties

LOUIS LEHOT- Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet Soup

LOUIS LEHOT- Ready To Sell Your Startup In 2021?

LOUIS LEHOT- The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s Next

LOUIS LEHOT- Leaving Your Job? Don’t Forget Your Stock Options…

LOUIS LEHOT- A Short Primer for Startups on Local Labor and Employment Law Compliance

LOUIS LEHOT- How To Clean Up A Corporate Mess

LOUIS LEHOT- Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic

[louis-lehot01]

Louis Lehot on Startup and Venture-Capital Investing in the Post-COVID Era

When the pandemic first hit the U.S. economy, many experts anticipated a decided pullback from comparatively risky investments like startups. Crunchbase reported in March of 2020 that “If past cycles are any guide, we can expect a sharp startup funding slowdown in coming months.” The Harvard Law School Forum on Corporate Governance concluded that “Investors and companies must be prepared to address and negotiate new or reemerging terms as investors seek to de-risk their investments and companies seek financing alternatives in response to rapidly changing market conditions.” Counterintuitively, outside of the travel and hospitality sectors, 2020 failed to usher in the “black swan” moment that had been proclaimed. As we move into spring in 2021, it feels decidedly 1999ish in technology, digital health and life science startups and investing.

Today, as businesses and schools begin preparing for a full scale reopening, we are entering the post-COVID era, but the startup landscape is not the same as it was in 2019 or 2020. Entrepreneurs and investors should take note: the rules of the game have changed, and are unlikely going back to the way they were.

Radical changes can create radically new opportunities, and new opportunities are a gold mine for investors. Despite the Q1 and Q2 pullbacks in the number of deals, 2020 still saw a record amount of VC funding. According to MoneyTree, VC investments reached $130 billion in 2020—a new record—with over 6000 deals. Internet startups were by far the largest vertical for funding last year. Healthcare was a distant second, followed by mobile and telecommunications and then other software.

With the rollout of coronavirus vaccines hitting full steam in the United States, the new $1.9 trillion 2021 federal stimulus program (on top of the $2.5T+ in 2020 federal stimulus programs) and “easy money” policies prevailing at the Federal Reserve (with the Fed’s balance sheet expanding by $8T+), things have gotten decidedly frothy in 2021. Crunchbase reported that January 2021 venture capital funding reached an all-time monthly high, with $39.9 billion in new funding, and then stayed steady at $35B in February. Sectors attracting the most attention were delivery, robotics, logistics, automotive, fintech, and cloud computing.

Pre-seed and seed deals have hit record levels, redefining the categories. While “early stage” in tech once meant being the first money into a company, it now refers to investing after a product has been developed, tested, entered commercial shipment, and demonstrated sufficient product-market fit to merit scaling capital, with some minimum amount of monthly recurring revenues. Seed capital, once the province of “Series A” investors, now refers to a new category of business angels and entrepreneur-funded “scout” funds that looks for companies with revenue. For entrepreneurs who have never raised capital before and have not yet developed a minimum viable product, the universe of “pre-seed” funding is probably with friends and family, and for the lucky ones, a university laboratory, an accelerator, incubator or government grants.

Once upon a time, pre-seed and seed deals were funded with heavily negotiated convertible note rounds and series seed preferred stock. Today, they are largely documented by one of four “simple agreement for future equity” templates posted on the Y Combinator website. The process has been “democratized” and decentralized, and while the bulk of venture capital continues to go into Silicon Valley based companies, the pandemic has totally distributed the workforce to the four corners of the world.

To some extent, the outsized funding of Internet startups and then healthcare simply parallels public sentiment during the pandemic, waves of shutdowns and resurging recovery. Everyone has been coping with how to handle work, school, and life from home, and healthcare provided a consistent backdrop. The real question today is whether those trends will continue into the next few years.

To answer this question, consider the trajectories of the Internet and healthcare. FlexJobs, a service that aggregates postings of remote jobs, lists several major and emerging companies that are either switching to a remote-first workforce or allowing employees to work remotely even after pandemic restrictions are lifted. Amazon, Microsoft, Facebook, and Twitter are on the list, as are Coinbase, Square, and Slack. This trend dovetails nicely with the longstanding trend of digital transformation. Other consequences aside, the pandemic seems to have accelerated the digital transformations of many companies, and that acceleration includes healthcare as well.

Could investors tire of Internet and healthcare startups? Maybe. The massive interest driven by the pandemic could have created a bubble, but again, the spike in VC investments in these fields was not driven solely by the pandemic. If your startup falls within one of these hot fields, you may still be well positioned to attract investors in the next few years.

Investors will want to see that your company can compete effectively with social distancing and pandemic-related changes to spending habits, and virtual meetings are commonplace. Make sure that your business model and your pitch work effectively within the new normal.

Despite all the changes in the last year, the basics of making a deal are essentially the same. Starting a new company is difficult in any setting, and today is no different. But with the right ideas, the right plan, and a bit of tenacity, you can build opportunities from even these unprecedented and challenging circumstances.

Louis Lehot is an emerging growth company, venture capital and M&A lawyer at Foley & Lardner in Silicon Valley. Louis Lehot spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from garage to global. He focuses his efforts on technology, digital health, life science and clean energy innovation. Louis’s clients are public and private companies, financial sponsors, venture capitalists, investors and investment banks, and he has helped hundreds of companies at formation, obtaining financing, solving governing challenges, going public and buying and selling. Louis Lehot is praised by clients, colleagues and industry guides for his business acumen, legal expertise and leadership in Silicon Valley.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensc

Louis Lehot on Data Driven Investor

Read the Articles written by LOUIS LEHOT:

LOUIS LEHOT- What to expect for seed and pre-seed stage financing in 2021

LOUIS LEHOT- A Brief Legal Guide To Buying And Selling Shares Of Private Company Stock

LOUIS LEHOT- The IPO Markets Are Changing, And So Is The Lock-up Agreement

LOUIS LEHOT- What are SPACs, and how they are different from IPOs?

LOUIS LEHOT- L2 Counsel Represents AgTech Leader FluroSat In Dagan Acquisition

LOUIS LEHOT- Considering Selling Your Company? Be Clear on Your Fiduciary Duties

LOUIS LEHOT- Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet Soup

LOUIS LEHOT- Ready To Sell Your Startup In 2021?

LOUIS LEHOT- The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s Next

LOUIS LEHOT- Leaving Your Job? Don’t Forget Your Stock Options…

LOUIS LEHOT- A Short Primer for Startups on Local Labor and Employment Law Compliance

LOUIS LEHOT- How To Clean Up A Corporate Mess

LOUIS LEHOT- Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic

[louis-lehot01]

Louis Lehot on Virtual Dealmaking and the Return to Work

Over the last year, the pandemic upended many industries, prompting businesses to pivot quickly to enable a fully virtual everything, from workplace to marketplace to nearly every aspect of life. Even the legal profession, which historically has been slow to adopt technology, is now starting to catch up to other industries by embracing digital transformation. The results in the startup world have been similar to those seemingly everywhere else. In-person meetings have been scrapped in favor of virtual meetings. Travel has been replaced by videoconferencing. Paper has been replaced by bits and bytes. While the tech industry is starting to return to normal, how much the new normal will be like the old is still an open question. At the same time, increased reliance on technology is changing the trajectory of virtual dealmaking.

The rapid virtualization of many business functions has had a number of unintended consequences. On the one hand, for startups and investors, virtual dealmaking has become commonplace, which has changed the dynamics of raising capital and investing. One startup CEO noticed that compared to pitching in person, virtual dealmaking had a heightened focus but found that “it allowed for more robust conversations and data sharing over a shorter period of time.” This pattern has been common since COVID-19 pushed so many meetings into cyberspace, but it also particularly complements high-resolution fundraising, allowing startups to connect quickly with more investors than ever before.

By driving faster connections and more pitches, these virtual meetings seem to be working well for the industry. Despite the pandemic, 2020 was a banner year for venture capitalists, with a record-setting $130 billion invested in over 6000 deals.

But on the other hand, virtual dealmaking has some significant drawbacks. Many people across all industries are tired of videoconferencing. We even have a genericized term for that now: “Zoom fatigue.” As Stanford University noted, virtual meetings face significant challenges compared to in-person meetings, specifically relating to cognitive load, a lack of movement, and too much screen time.

Where will the industry go from here? As businesses open up more and travel becomes more normalized again, in-person dealmaking will probably stage a staggered return. Many people prefer them, so they will always be good fits for some. But given the changes in the past year and the benefits that many saw from faster pitch cadences, startups and investors will probably continue making deals virtually, almost certainly more than they did back in 2019 and prior, which leaves a big question about addressing the challenges of virtual meetings.

Companies have delivered annual and quarterly financial returns with a largely steady topline and bottom line benefiting from elimination of the travel and entertainment budget. With the economy returning to work, spending on travel and entertainment will return, but at what pace and in what quantum? Will cost savings be retained when growing the topline with a workforce back at full capacity?

I’ll end with one possible (and admittedly speculative) solution, at least in part. For many years, dating back at least to the 1990s and the early days of stereoscopic video games, virtual reality (VR) has been touted as the next big thing. And yet, even the 3D-television craze several years ago and the rampant interest in VR headsets has not led to significant adoption. While we may see VR find a place in high-level business meetings, augmented reality (AR) appears better positioned to make significant inroads.

New augmented reality technologies that enable meeting participants to not only see each other and share documents, but immersively view, manipulate and interpret data together in an augmented, three-dimensional or phygital world, could be a game changer. For a sneak view of what an augmented reality, augmented data analytical world would look like, check out what our friends at Flow Immersive are building here, or the “phygital” worlds built for clients of Double-A Labs.

AR could enable virtual meetings while also providing more natural interactions than staring at a screen would allow. Maybe bridging the gap between the virtual and real worlds would be enough to address the fatigue that so many feel with virtual meetings.

The ability to have more natural interactions with clients, business partners, investors, and lawyers without the cost (or risk) of travel could be a major deciding factor to pushing AR meetings into the mainstream. A number of companies are working on related technologies, so the question is who will make it work first. Maybe someone will come up with an entirely different and vastly superior solution. Time will tell.

This article was republished with permission at VentureBeat.com.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensc

Louis Lehot on Data Driven Investor

Read the Articles written by LOUIS LEHOT:

LOUIS LEHOT- What to expect for seed and pre-seed stage financing in 2021

LOUIS LEHOT- A Brief Legal Guide To Buying And Selling Shares Of Private Company Stock

LOUIS LEHOT- The IPO Markets Are Changing, And So Is The Lock-up Agreement

LOUIS LEHOT- What are SPACs, and how they are different from IPOs?

LOUIS LEHOT- L2 Counsel Represents AgTech Leader FluroSat In Dagan Acquisition

LOUIS LEHOT- Considering Selling Your Company? Be Clear on Your Fiduciary Duties

LOUIS LEHOT- Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet Soup

LOUIS LEHOT- Ready To Sell Your Startup In 2021?

LOUIS LEHOT- The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s Next

LOUIS LEHOT- Leaving Your Job? Don’t Forget Your Stock Options…

LOUIS LEHOT- A Short Primer for Startups on Local Labor and Employment Law Compliance

LOUIS LEHOT- How To Clean Up A Corporate Mess

LOUIS LEHOT- Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic

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Louis Lehot: What Are SPACs, and How They Are Different From IPOs?

One of the hottest investment trends in the past year is the rise of special-purpose acquisition companies, commonly called SPACs.  SPACs are shell companies that exist to raise capital to acquire other companies, which is why SPACs are also known as “blank-check companies.”

The concept is an old idea, dating back to at least the late nineteenth century, when Henry Villard sought to raise capital to buy the Northern Pacific Railroad without revealing the name of the target company.  Modern-day SPACs have existed since the mid-1990s.  Today, these investment vehicles have been used across a myriad of industries—from a manufacturer of electric cars to an aerospace startup to a cryptocurrency mining company.

While SPACs, as they are known today, has been around for decades, they have seen explosive growth in the last few years.  SPACInsider reports that the number of SPAC IPOs grew from one in 2009 to thirty-four in 2017.  Two years later, there were fifty-nine, and interest exploded to 248 in 2020.  This year is already on track to set a record, with 237 SPAC IPOs as of March 9, and proceeds almost equaling the total from all of last year.

The level of SPAC activity has accelerated to unprecedented levels in the M&A markets as well as the IPO markets.  According to Deal Point Data, the amount of capital pursuing “public-ready” private targets is 1.85x larger than the total gross proceeds raised in traditional IPOs in all of 2020, and 298x 2019’s IPO proceeds.  The 544 SPACs seeking targets represents 1.42x the number of non-SPAC IPOs priced in 2019 and 2020 combined.

But how is a SPAC different?  For the target company, a SPAC acquisition provides a means of separating the IPO from the company itself.  Investors buy shares of the SPAC, not of the target company, but after the merger, the shares of the SPAC effectively become shares of the original corporation.

This abstraction of the IPO from the underlying company explains the increasing popularity of SPACs.  They provide a streamlined alternative to traditional IPOs.  While a traditional IPO takes one to two years to complete, a SPAC merger can close in under six months.  PwC notes that SPAC mergers can help the target companies gain liquidity without as much uncertainty in valuation, which is especially important when markets are volatile.  Crunchbase notes that companies that would likely benefit from a SPAC acquisition over a traditional IPO are those that could launch a traditional IPO but want to accelerate their entrance into public markets in order to gain liquidity and capital.

The actual merger between the SPAC and the target company is called the de-SPAC transaction.  This process functions similarly to regular mergers, but the SPAC’s shareholders usually need to approve the acquisition before proceeding.  And because investments in the SPAC are held in escrow, operating funds are not easy to access.  The SPAC really is just a vehicle for investors to purchase the target.  Once the merger is complete, the SPAC fades away, while the shareholders gain their corresponding stakes in the target.

If you are considering taking your company public, a SPAC acquisition may be worth investigating.  Indeed, 290 SPAC IPOs were in registration as of February 28, 2021, versus 70 traditional IPOs, up from 129 and 99 respectively as of the end of Q3 2020, which marked the first quarter end for which interest in SPACs exceeded traditional IPOs.  Easier access to liquidity and a faster transition to public trading make SPACs very attractive.  SPAC mergers are not magical solutions, but they could be right for you.

Going public means having internal controls, disclosure controls and enterprise operating systems in place to satisfy stringent standards of the US Securities and Exchange Commission and strong enough to withstand the plaintiffs’ bar that can be unforgiving in civil litigation, and an ability to forecast revenues up and to the right to satisfy Wall Street investors.

When is a SPAC a better vehicle than a traditional IPO for your business?  A SPAC is particularly well-suited for a business that requires amounts of capital investment that exceed the ability of venture capital firms to fund them, and that is “public ready.”  It’s also well-suited for a well-prepared private company looking to go public quicker and cheaper than the traditional IPO.  But it’s not for everyone, especially retail investors who are less well-positioned to evaluate the probability of forward-looking estimates of future revenue, and not able to withstand a significant reduction in value.

Whether a SPAC or an IPO, the year 2020 marked the reversal of the multi-year trend of more companies deciding to go private than go public.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

About the Author:

LOUIS LEHOT is an EMERGING GROWTH COMPANY, VENTURE CAPITAL, AND M&A LAWYER at FOLEY & LARDNER in Silicon Valley. Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from garage to global. He focuses his efforts on technology, digital health, life science, and clean energy innovation. Louis’s clients are public and private companies, financial sponsors, venture capitalists, investors, and investment banks, and he has helped hundreds of companies at formation, obtaining financing, solving governing challenges, going public, and buying and selling. LOUIS is PRAISED by clients, colleagues, and industry guides for his business acumen, legal expertise, and leadership in Silicon Valley.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensc

Louis Lehot on Data Driven Investor

Read the Articles written by LOUIS LEHOT:

LOUIS LEHOT- What to expect for seed and pre-seed stage financing in 2021

LOUIS LEHOT- A Brief Legal Guide To Buying And Selling Shares Of Private Company Stock

LOUIS LEHOT- The IPO Markets Are Changing, And So Is The Lock-up Agreement

LOUIS LEHOT- What are SPACs, and how they are different from IPOs?

LOUIS LEHOT- L2 Counsel Represents AgTech Leader FluroSat In Dagan Acquisition

LOUIS LEHOT- Considering Selling Your Company? Be Clear on Your Fiduciary Duties

LOUIS LEHOT- Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet Soup

LOUIS LEHOT- Ready To Sell Your Startup In 2021?

LOUIS LEHOT- The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s Next

LOUIS LEHOT- Leaving Your Job? Don’t Forget Your Stock Options…

LOUIS LEHOT- A Short Primer for Startups on Local Labor and Employment Law Compliance

LOUIS LEHOT- How To Clean Up A Corporate Mess

LOUIS LEHOT- Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic

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Louis Lehot Discusses Technology Innovation with Delegation of Belarussian Human Rights

LOUIS LEHOT, a corporate and technology law partner with leading global law firm Foley & Lardner LLP in Silicon Valley, recently visited with a delegation of Belarussian human rights activists, including Mrs. Sviatlana Tsikhanouskaya, who ran in the 2020 Belarussian presidential election as the main opposition candidate. The group, which also included leading academics, entrepreneurs, investors, and thought leaders, convened in Silicon Valley to explore ways to create vibrant economic growth fueled by clusters of technology innovation.

In a wide-ranging and thorough conversation, the participants discussed the importance of academic freedom in universities, freedom of expression, the rule of law, principles of private property, intellectual property protection, statutes to allow for the creation and funding of business enterprise, the role of a sophisticated judiciary, industrial policy, and other principles of democratic societies. The attendees shared their experiences building companies in clusters of innovation around the world, where universities fostered research in technology and innovation, how pools of risk capital formed to fund new enterprises, and how freedom of movement, expression, and wealth creation fostered companies that could grow from the garage to the global stage.

Specifically, participants of the Silicon Valley consortium discussed the role of Stanford University, the University of California at Berkeley, and other leading academic institutions in creating technology and training generations of technologists. They explained the history of Silicon Valley, and how investors had congregated around the universities and raised funds to create an alternative asset class to fund risky new ventures, called “ venture capital.” As new companies raised funds, brought products to market, and disrupted industries, they went global. Larger pools of equity capital then became available at a lower cost. These companies went for stock exchange listings in the public markets and raised more equity capital. As they developed histories of good cash flow and well-valued assets, they became eligible for debt capital to further finance growth. Investment banks flocked to Silicon Valley, as did private equity investors for mature companies. The participants described how clusters of innovation had similarly developed in other markets such as Israel, Europe, and Asia.

Some key takeaways from the discussion included:

1. The importance of the government’s role in providing a system where the rule of law is predictable and incentivizes the creation of technology innovation.

2. How white papers can be used to drive discussion and develop consensus around key principles, goals, and priorities.

3. Using regulatory “sandboxes” to allow for development and experimentation within areas of technology innovation.

4. The key role the rise of the digital economy plays in technology innovation.

The importance of connecting entrepreneurs in the diaspora with the home country to bring back learning, capital, and innovation.

The importance of the empowerment of women.

Attorney advertising-prior results do not guarantee a similar outcome. 

The opinions expressed here are my own and do not reflect those of Foley & Lardner LLP.

About the Author:

LOUIS LEHOT is an EMERGING GROWTH COMPANY, VENTURE CAPITAL, AND M&A LAWYER at FOLEY & LARDNER in Silicon Valley. Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from garage to global. He focuses his efforts on technology, digital health, life science, and clean energy innovation. Louis’s clients are public and private companies, financial sponsors, venture capitalists, investors, and investment banks, and he has helped hundreds of companies at formation, obtaining financing, solving governing challenges, going public, and buying and selling. LOUIS is PRAISED by clients, colleagues, and industry guides for his business acumen, legal expertise, and leadership in Silicon Valley.

Connect with LOUIS LEHOT:

Website: LOUIS LEHOT

Website: LOUIS LEHOT

LinkedIn: LOUIS LEHOT

Facebook: LOUIS LEHOT

Louis Lehot on Patch

Louis Lehot on Instagram

Louis Lehot on Youtube

Louis Lehot on Crunchbase

Louis Lehot on Muckrack

Louis Lehot Interview on Ideamensc

Louis Lehot on Data Driven Investor

Read the Articles written by LOUIS LEHOT:

LOUIS LEHOT- What to expect for seed and pre-seed stage financing in 2021

LOUIS LEHOT- A Brief Legal Guide To Buying And Selling Shares Of Private Company Stock

LOUIS LEHOT- The IPO Markets Are Changing, And So Is The Lock-up Agreement

LOUIS LEHOT- What are SPACs, and how they are different from IPOs?

LOUIS LEHOT- L2 Counsel Represents AgTech Leader FluroSat In Dagan Acquisition

LOUIS LEHOT- Considering Selling Your Company? Be Clear on Your Fiduciary Duties

LOUIS LEHOT- Incentivizing With Stock Options: What Your Startup Needs To Know About ISOs, NSOs And Other Parts Of The Alphabet Soup

LOUIS LEHOT- Ready To Sell Your Startup In 2021?

LOUIS LEHOT- The State Of The Acqui-Hire In 2021: The Good, The Bad, The Why And What’s Next

LOUIS LEHOT- Leaving Your Job? Don’t Forget Your Stock Options…

LOUIS LEHOT- A Short Primer for Startups on Local Labor and Employment Law Compliance

LOUIS LEHOT- How To Clean Up A Corporate Mess

LOUIS LEHOT- Calculating And Paying Delaware Franchise Taxes — Startups Need Not Panic