Venture Capital & Emerging Companies

U.S. Securities and Exchange Commission member Michael Piwowar on Tuesday urged investors to be wary of the pitfalls of so-called SAFE investments — a sophisticated financing instrument for startup companies — that are increasingly being marketed to the broader retail investing public.

There is little doubt that activity in the trading of secondary shares of private companies remains robust. Private companies are staying private longer and there seems to be an unlimited demand to buy into the newest “Unicorn” anointed each week. As the market for secondary shares stays strong, valuations seem not to matter much to most buyers.

Creating a business in the gig economy (on-demand work) is advantageous for startups because when they are able to classify their workers as independent contractors, the startups can avoid paying benefits, payroll taxes, unemployment insurance, workers’ compensation, and disability. Startups, however, need to carefully classify their workers as misclassification can lead to investigations, penalties, and lawsuits, which are becoming increasingly common.

Decisions you make when founding and/or investing in an insurtech venture can dictate your regulatory obligations, tax liability, operational structure and, ultimately, profitability. Here are five seemingly simple questions to ask when launching an insurtech venture:

Recognizing that physical therapy will always be in demand, Dr. Stephen Fealy MD, a leading orthopedic surgeon at the Hospital for Special Surgery (HSS), and Greg Peters, a leading health and fitness expert, joined forces to make the overall physical therapy industry and experience more effective and efficient, thus BetterPT was conceived.

This issue includes two articles that challenge conventional thinking. The first, called “Software is Still Patent Eligible,” makes the case that software patents can still be obtained. IP generally accretes in value over time and is critically important to the value proposition of many enterprises. While some commentators believe that software patents are no longer worth trying to obtain, we disagree. The second article is about a novel way to construct a more balanced approach to the share ownership of founders and investors. People often forget that the NVCA (National Venture Capital Association) forms are created by counsel to the venture capital industry and as such are generally biased in favor of the investor. Our article proposes a novel solution to mitigate this bias and the solution is both simple and equitable.

Our client, Benji Cohen, was running an Energy Markets Division at Macquarie when he had a lightbulb moment. Everywhere he looked valuation models were being put together in the most laborious way imaginable, with Excel tables containing hundreds of columns and thousands of rows. Benji saw a real point of pain in the marketplace and acted on it. Thus, in 2012, Benji created T-REX as a subscription-based, SaaS, FinTech platform that could compress the time for the valuation process to make the process 50 times faster and more accurate as well. And, the focus would be in a growing niche — the renewable energy sector. Benji was able to see the size of the opportunity, the point of pain in the marketplace, and the solution. With much hard work and great execution, T-REX is now a leader in this part of the FinTech space. In this edition of TechConnect, we highlight T-REX in our Innovator Profile.

Founded in 2012 and headquartered in New York City, T-REX’s secure, enterprise SaaS-based analytics, risk, and portfolio management platform standardizes and provides transparency to the complex structured products evaluation process, increasing liquidity and creating significant investment opportunities for the hundreds of billions of dollars of capital across various esoteric, non-commoditized asset classes.

If there is one common theme that entrepreneurs tend to have, it is fire – meaning, many entrepreneurs are passionate about an exciting idea that they seek to turn into a business. However, entrepreneurs often quickly realize that, in order to make their fire glow high and bright for the world to see, they need fuel – meaning, capital.

At MintzEdge, we are already thinking about how a recent immigration law development may help our clients grow their ventures. The United States Citizenship and Immigration Services (USCIS) recently announced a new rule for entrepreneurs. If the rule becomes law, qualified entrepreneurs would be considered for parole (temporary permission to be in the United States) to jumpstart and build their businesses in the United States. The rule is a path-breaking proposal because it seeks to use and retrofit an existing immigration benefit called “parole” to meet the needs of entrepreneurs, who may otherwise be unable to secure a nonimmigrant visa such as an H-1B or E-2 visa.

The world of raising capital for emerging companies has experienced a revolution. Prior to the enactment of the JOBS Act in 2012, raising capital for private companies was limited to offline communications and was dominated by professional venture capitalists; now the capital raising process has been democratized. Capital can be raised online directly by companies or through intermediaries. It can be accomplished by crowd sourcing to “accredited investors” or, in limited amounts, by crowdfunding to everyone. Additionally, companies can raise capital in an “IPO lite” manner by using the new Reg A+.

Vidrovr can index, search, and recommend video content in a cost-effective, automatic, and accurate manner. Vidrovr addresses three key market needs: 1. Domain and customer-specific automatic metadata generation for videos, 2. Video Content Management solutions that enable automatic placement and recommendation of video clips for across a company’s digital products, and 3. Automatically linking and sourcing visual social media content that is relevant to a particular video or online article before it is published. Vidrovr was recently named as one of the winners of the prestigious Publicis90 competition, which entails investment and mentorship from Publicis Groupe.

The world of raising capital changed over the last several years. Offerings of securities generally used to fall into two main buckets: (i) private placements under the old Rule 506, or (ii) a public offering.

According to the FBI, “there are only two types of companies: those that have been hacked and those that will be.” It does not take an actual data breach, however, for a company to be liable for its data security practices. In March 2016, the Consumer Financial Protection Bureau (CFPB) made this clear when it settled its first-ever data security enforcement action against an online payment processing company, Dwolla.

We are often presented with the question of whether electronic signatures are enforceable. The answer is yes. There is an entire statutory regime under both state and federal law which gives validity to electronic signatures. This article gives a high level overview of best practices for optimizing your use of electronic signatures.

New York-based advertising powerhouse Grey Group has launched a new, tech-focused unit aimed at engaging directly with the cutting-edge material required by its present and future clients. Called Grey Adventures, the unit will work to create new products, services, and business models for the agency. Partnering with both innovative start-ups and established tech companies alike, the practice combines Grey’s creative capital with its deep, material understanding of the tech space. The team will be led by Evan Kraut, Grey’s managing director of Grey Adventures, and Darren Moran, the agency’s head of innovation.

SeedInvest is a leading equity crowdfunding platform founded in 2012. Its mission is to transform the broken private company fundraising process to make it easier for entrepreneurs to raise capital by opening up access to venture capital and angel investing to everyone. Equity crowdfunding is important because it has the potential to allow founders to spend less time fundraising and more time building their businesses, which is what matters most. It also allows startups to turn their most ardent supporters and customers into investors for the first time.

In this issue, we answer the question we are asked on a weekly basis: Are electronic signatures enforceable? (spoiler alert….the answer is YES). We also feature an amazing company called SeedInvest, a true pioneer in terms of raising a company online from the crowd. Additionally, consistent with our focus on robotics, we have an interesting article about selling your robotics company.

Cynthia Larose – Chair of the Privacy & Security Practice Group at Mintz – was named by the National Diversity Council as one of the 50 Most Powerful Women in Technology for 2016. Honorees are women serving as top leaders in their organizations and professions, who maintain a record of accomplishments in areas of expertise, operate with the highest integrity, demonstrate a commitment to corporate citizenship, and serve as effective role models to inspire the next generation of female professionals.

Our client Gotham Greens is pioneering the urban agriculture field by providing its diverse retail, restaurant, and institutional customers with premium-quality lettuces and herbs grown from rooftop greenhouses in NYC and Chicago. The company’s pesticide-free, non-GMO produce is grown using ecologically sustainable methods, meeting the highest standards of food safety. Sent to local stores and grocers, its crops are designed for eating, not travel. But the real innovation lies in Gotham Greens’s 100% clean energy–powered, climate-controlled, urban greenhouses, which produce over 50% more crops than conventional greenhouses while using 25% less energy per pound.