INSUBCONTINENT EXCLUSIVE:
We are experimenting with new content forms at TechCrunch
Arman.Tabatabai@techcrunch.com if you like or hate something here.Ignoring the midterm hysteria, we continue our obsession with SoftBank
But first, some thoughts about Form Ds.Recently, I was looking up the investment history of Patreon (Note: I was an investor in the company
through my previous venture firm CRV)
than $100 million in venture capital according to Crunchbase, and to my knowledge, is not incorporated outside of the United States.There
should be a whole spate of filings, and yet none exist
as a specific strategy to avoid scrutiny.To take a step back, when companies take money from investors, they sell those investors securities
Under American laws, all securities need to be registered with the Securities and Exchange Commission using pre-defined templates (such as
an S-1 registration form) to ensure that all investors know exactly what they are buying.However, registration is expensive and
time-consuming, and so United States law also provides a set of exemptions from registration for companies where that process is
Startups take advantage of these exemptions and stay private, until they eventually want to become public through a registration with the
SEC.One mandated component of taking advantage of these registration exemptions is that the startup needs to file a Form D with the SEC
The Form D is free to file and relatively simple, requiring basic information such as the amount of capital fundraised and who the investors
the practicalities are that almost nothing bad happens to startups that fail to file a Form D
The only additional requirement is generally to file state security forms in lieu of the federal form.A bigger question is why go through
where the good people at TechCrunch will see it and report on it
Of course, the whole point of Form D disclosure is to provide the public a modicum of information about what is happening in the economy.But
actually, the motivations go far beyond that
One reader, Paul David Shrader, saw our note yesterday that we were investigating Form Ds and offered this list of reasons on why companies
why management, the board of directors, or even investors may be sensitive to fundraising disclosures:1
This can come from employees demanding different levels of compensation.2
Many startups operate in regulatory gray areas, and increased attention from regulators before they are ready can be a Bad Thing.3
The company has security concerns
For startups that operate in certain environments internationally, raising a monster round can place a target on the backs of its employees
This has been an issue in Latin America from time to time.4
The company has competitive concerns
Raising a big round may attract new entrants to the market or heighten attention from existing competitors before a startup has solidified
its position in the market.5
Some investors want to disclose new investments on their own timeframe, and they make this a condition of their investment
Publicly-traded investors or sovereign wealth funds may only want to disclose at the time of their quarterly reports.6
Flat rounds or down rounds can suck away any positive momentum
When founders are trying to convince customers and employees to join the rocket ship that is their company, a flatlining fundraise can look
The round may not be closed yet
at the outset of the round
Sometimes a single round can take 18+ months to close, even though a sizable (or not so sizable) percentage closed at the outset.Some of
these are obvious, but others, such as internal compensation concerns or international security concerns, were more surprising to me
Thanks Paul David for the thoughts.Now, I said at the outset that my hypothesis is that startups are increasingly foregoing Form D
Arman and I are still doing work on this (the SEC has some data sets), but to be frank, it is very hard to operationalize and prove
Form D filings are up or steady, which makes sense given that the number of startups in areas like San Francisco have skyrocketed over the
still interested in whether the legal norms have shifted here, and will hopefully report back on this again
If you are a startup attorney with an opinion here, please email Danny@techcrunch.com or Arman.tabatabai@techcrunch.com with your
complicated filings in the world is underway
prevented it from pursuing investments in the past.SoftBank continues to dole out multi-billion-dollar checks with stunning regularity,
having invested around one-third of its $90+ billion Vision Fund
And we know SoftBank has no intention of slowing its torrid pace, with chairman and CEO Masayoshi Son previously stating he plans to raise
$100 billion funds that would spend around $50 billion annually, every two or three years.One way SoftBank is looking to access additional
funding to pour into the next batch of unicorns is by taking a portion of its Japanese mobile business public
For some context, SoftBank is generally considered to be the third largest telco in Japan behind NTT DoCoMo and KDDI.Even though initial
largest listings ever at potentially more than $25 billion, which would value the overall business at $90 billion on the high end
Reuters recently reported via a Japanese news service that the Tokyo Stock Exchange is expected to give SoftBank approval to list shares
next Monday, with a likely listing date of December 19th.But the progression of the IPO has been oddly complex and unique from the
beginning.First, there was an issue with a set of bonds SoftBank had issued in 2013, which were guaranteed by the telecom business and had
covenants requiring that the company hold investment-grade credit ratings before pursuing a sale of any sort
To fix that roadblock, SoftBank issued a new set of bonds with better terms to buy back the bonds with the prohibitive covenants,
undercutting and aggravating some investors of the initial bonds.Then, it was reported that while lining up the underwriting banks for the
IPO, SoftBank reportedly asked banks to commit to loans to the Vision Fund that total around $9 billion, a claim SoftBank has not commented
and Goldman Sachs Group Inc., have given non-binding assurances while they finalize terms of the loan to the Vision Fund, the people said
because the information is private.Deutsche Bank AG, Mizuho Financial Group Inc
and Sumitomo Mitsui Financial Group Inc
Details of the loan are still being worked out, and terms could change, the people said
others) would be set as collateral, Bloomberg also reported in the same article that the loans were non-recourse, meaning that if for some
reason SoftBank were unable to repay the loan, the lenders would have no claim to any assets outside of the company stakes set as collateral
The loan terms become more concerning with the Vision Fund since it invests in many unlisted and, in many cases, unprofitable companies
As we noted yesterday, at least one potential lender, Bank of America, decided not to participate due to concerns that the terms were too
reporters about terms they find egregious
continuing to investigateReading docketWhat we are reading (or at least, trying to read)
