Support Form D Opacity!
CD Saved: The Barmitzvah Brothers, The Night of the Party
CD Recipient: Fred Wilson, Principal at Union Square Ventures
A privately-held business is under no obligation to publicize its financial results. It has no requirement to disclose the closing of a material transaction. On the contrary, it is often strategically important to keep this information under wraps.
Why then are privately-held startups required to publicly disclose when they raise money from investors in a completely private offering?
A startup's typical vc or angel round offering entails filing with the SEC a Form D. In the Form D, an issuer reports general information about the investment round, including the amount of cash raised. Filed Form D's are available for viewing on the SEC's website. Third party aggregators, like FormDs, make the process of Form D discovery even easier.
For those running a startup, the adverse consequences of announcing these details are clear. As young companies, startups must use every negotiating chip to their advantage. But it is much more difficult for a startup to negotiate the best deals when its counter-parties are aware that it is flush with cash. Also, as noted by Fred Wilson, among others, Form D public disclosure introduces timing complexities into messaging of what is typically a significant corporate event.
To deal with these consequence, some startups seriously weigh noncompliance as a realistic option--an alternative with its own drastic effects. Other startups may deliberately use a vague corporate name in an effort to skirt public notice. But why should this be necessary?
The sole stated purpose of the Form D is to help the SEC and state regulators collect data about private offerings [see beginning section of SEC Release 33-8891]. But if that's the rationale, there is no reason the Form D needs to be public; it ought to be made confidentially to the SEC and state regulators.
Beyond general prurience, there is simply little compelling justification for requiring a private company to publicly announce raising money in a private offering of securities. I'm generally a big fan of transparency, but the cost-benefit analysis favors Form D opacity.
CD Saved: The Barmitzvah Brothers, The Night of the Party. The Night of the Party is the first release of this Canadian band and showcases their self-professed "electronic-polka" phase. Mind the dreamy, laconic delivery of Hebrew. Standout tracks: "Sfog" and "Pump #4."
Congrats Fred Wilson, Principal at Union Square Ventures! Sweet indie tuneage is heading your way!
[After recently marrying and moving into a tiny NYC apt with the wife, I've been tasked with reducing my personal possessions. Rather than relegate my carefully curated CD collection to neglect on the shelves of a thrift shop or a dumpsterian fate, I've decided to give it away, one by one. Listen with care.]