32 posts categorized "March 2012"

Open Call for Guest Bloggers

I'm planning a vacation and would like to line up a few guest bloggers to spot me a few days over that stretch.

Some prose and a quill

If you're interested, please let me know. If you are not yet an active commenter on this blog, please indicate your interest in the comments.

Any active member of this community raising a hand will be called on!

There is a condition, however. If you say yes, I will pay you 50 dollars, and you must follow through on our contract. If you say yes and do not deliver the post by the agreed upon deadline, then you will pay me 100 dollars. Consider this the penalty behind the unmet mandate. I have no idea whether this is constitutional.

Photo: Ray Sadler / Flickr.

Facebook IPO Filing, 3rd Amendment: Yahoo Suit, Mobile, Exposing Users, Compensation

Time again to check in with Facebook's IPO filing.

Earlier this week, the company filed its third amendment to its registration statement on Form S-1.

Not too much to report, in terms of text changes from the last draft prospectus.

Below are screenshots of the changes I found the most interesting.

Yahoo suit>>>

Screen shot 2012-03-30 at 7.04.03 AM

Those pesky mobile users, hanging out in undisclosed locations! >>>

Screen shot 2012-03-30 at 7.05.13 AM

Go, mobile! >>>

Screen shot 2012-03-30 at 7.07.16 AM

Growth in "Facebook Payments" >>>

Screen shot 2012-03-30 at 7.41.49 AM

Intricacies of pricing stock awards >>>

Screen shot 2012-03-30 at 7.44.19 AM

Stickiness Stats >>>

Screen shot 2012-03-30 at 7.46.38 AM

Hope those households had their flu shots >>>

Screen shot 2012-03-30 at 7.47.25 AM

Exec Comp: cash low, stock . . . to the moon >>>

Screen shot 2012-03-30 at 7.50.09 AM

Goldman Sachs decision makers >>>

Screen shot 2012-03-30 at 7.51.54 AM

You can find a complete redline, which compares Amendment No. 3 against Amendment No. 2, here.

Twitter's Integrity

As social web services proliferate, I'm finding Twitter, my first love, the only one a natural feature of daily life.

New pretenders feel fun and flashy at the outset; but, so far, most soon begin to feel like they are up to something, something other than me, my friends and our conversations. To paraphrase the adage about free services, I end up feeling like the product.

When Dave Winer blogged, Twitter should generate revenue by licensing our @usernames to us, I said, hell yeah! I would pay a significant annual license fee to keep @wac6 locked up.

And there are so many other ways this company could monetize. Alternatively, there are billionaire philanthropists who could do the world the greatest good by buying Twitter and making it the most important democratic information utility. (Which it arguably now is.)

How much should this video concern me? Might it be a parody?


Maybe it's an experiment with an ulterior purpose, an opportunity to hear from businesses how Facebook is doing pitching for ads? The brand stewards at Twitter, unlike those at Facebook, could not really be this un-cool, no?

But get these quotes from the video:

  • "You don't write anything new. Twitter simply puts your best tweets in front of more of the right people at the right time."
  • "You only pay when someone follows your account, or engages with your promoted tweet."
  • "You determine the limit of how much you want to spend per day, and how much you want to spend per new follower or engagement. So there are never any surprises."

They say they will take the ads mobile, too. Same as what Facebook has said in its amended S-1.

I guess I don't mind if Twitter makes a corner of Twitter more like Facebook, as long as I don't have to go there any more than I have to go to BellSquare Mall. It's a big Twittersphere. Let the free riders have their commercials. But don't mess with my timeline or my tweeple. Don't sell access to me. Let me pay

My daughter, observing me listen to the video over and over last night in an effort to transcribe the quotes correctly, remarked, "I thought Twitter was just for people to talk to each other. I thought that was what made it slightly less irritating than Facebook."

Out of the mouths of 23 years olds.

The Supreme Court and Politics

I've been too busy this week to geek out and follow the play by play coverage - on multiple channels! - of the oral arguments before the US Supreme Court on the health care law.

But I was very happy to see my friend, Mark Byrnes, took the time on his blog to put what is happening into historical political perspective. He walks us through the politics of the Dred Scott decision, and cautions that any "victory" for one side or the other in the case could be but prelude to a political backlash.

"The Dred Scott decision was a pyrrhic victory for southerners. Three years later, the Republicans proved the "funeral sermon" was premature--they won control of the Presidency and both Houses of Congress. The case produced not an end to the debate, but rather a political backlash that ended with the destruction of the very institution of slavery that southerners were trying so desperately to save."

Screen shot 2012-03-27 at 10.07.08 PMWhat made Mark's post particularly resonant for me was having just (again, on the treadmill at the gym) caught the end of a surprisingly candid C-SPAN documentary about the Supreme Court.

At the 1:18:20 mark of the video, Chief Justice John Roberts has this to say about his predecessor, Chief Justice Tawney, who wrote the Court's opinion in the Dred Scott case:

"Right next to [the portrait of John Marshall] is Roger Tawney, the most unfortunate of my predecessors, the author of the Dred Scott decision. And you understand that he saw this great problem in the country of slavery, and he was going to solve it. And this is how he was going to solve it. Tremendously misguided, and it injured the Court for generations to come. So that help informs how you look at your own job."

God bless America.

The Three Audiences of the JOBS Act

Today the House is expected to "concur in the Senate Amendment to H.R. 3606." After that happens, the Jumpstart Our Business Startups (JOBS) Act will go to President Obama, who is expected to sign it.

Three ring circus

As you know, the JOBS Act has been the focus of this blog this month. The JOBS Act is a big deal for entrepreneurs, startups, angel investors, venture capitalists, and would-be equity crowdfunders. Joe Bartlett, who chairs the advisory council to the public policy committee of the Angel Capital Association, said at the ACA Summit in Austin earlier this month that the Act represents the biggest set of changes to securities laws in over twenty years.

Debriefing will continue for some time. The SEC will have to engage in rulemaking that for some provisions will, and for other provisions may, make or break the intended reform.

You might note how different audiences are receiving and talking about the JOBS Act. There are three discernable audiences:

  • Angels and angel groups are focused on the lifting of the prohibition on general solicitation in Reg D Rule 506 offerings that are limited to accredited investors. Complementing this reform is a new safe harbor to federal broker-dealer registration requirements, which will let angels socialize deals online, and make it easier for startups to pitch at angel and incubator events.
  • VCs and serial entrepreneurs who can project taking their companies public are focused on the IPO on-ramp provisions, reforms that will delay some of the requirements imposed on companies after they go public. This initiative was lobbied for by the National Venture Capital Association. In GeekWire, John Cook wrote about how the VC lobying effort had the support of many prominent startup entrepreneurs.
  • Crowdfunding advocates, most of them, are ecstatic that a law has been made which would allow equity to be crowdfunded, with participation in such deals being open to everyone. I feel bad that I have been so negative about what the Senate did to the McHenry crowdfunding bill. Paul Spinrad, a huge leader in the equity crowdfunding movement and, in my opinion, the one who best articulates the rationale for equity crowdfunding, posted a remarkably objective assessment yesterday. 

At the beginning of this month, I posed questions in this GeekWire guest post about how angel financing and equity crowdfunding might co-exist: would deals overlap; would one kind of deal naturally follow the other; would crowdfunded deals and angel financed deals be mutually exclusive? No one can really know for sure, of course, but I would say that the changes made in the Senate to crowdfunding will make crowdfunding and angel financing mutually exclusive. It's a bit ironic, but Title II of HR 3606 in many ways puts true crowdfunding behind the accredited investor gate, while giving non-accrediteds a new kind of limited offering registration as an alternative to the others (little used) already out there.

As always, the best discussion of the implications of the JOBS Act is on Fred Wilson's blog. With regard to crowdfunding, Fred says to remember that a step in the right direction has been taken. I'm going to keep reminding myself to stay positive.

Photo: Three Ring Circus by scilina georgia / Flickr.

Open Sourcing Legal Templates - and How They're Used

The following is an email exchange between me and Veronica Picciafuoco of Docracy. We completed it a couple weeks back, soon after a small flurry of posts about open sourced legal templates, which included some good natured sparring with Ken Adams about quality over availability. The JOBS Act interevened, so I am just getting to publishing this now. It's important. Veronica sets a pretty incredible expectation here, that the open sourcing of legal templates - at least, that activity in the way Docracy is going about it now - will give parties to a deal some insight, not just as to what templates others use, but how they change them.

BC: I take it you don't agree with Ken Adams position about open sourced legal docs, the "garbage in, garbage out" critique?

Screen shot 2012-03-25 at 8.29.28 PMVP: I definitely took his bet! A lot of people fail to grasp the potential of open source documents to make society better as a whole. Docracy was developed to make this happen, now that technology allows it. And it's frustrating when people focus on the virtues or shortcomings of a particular form. It's not so much about the form, its how people use it.

BC: What is it about Docracy that leverages the information about how documents are being used?

VP: Since we pair attribution (every document has an identifiable owner) to execution (we provide free e-signing), anybody who signs Gunderson's NDA with me, via Docracy, will be able to see that the document comes orginally from Gunderson, and see what I changed before asking him to sign. How powerful is that, in a negotiation?

BC: I see your point. But who is going to let those secrets be exposed like that? Who's going to let anyone trace the history of how a document has been varied?

VP: There's always the old, secretive way to do that: going to a lawyer who will customize the document so it's more advantageous to one party. But what about those who can't afford a legal consultation? They find more protection in transparency than "off the radar" legal manipulation. This is exactly what we hope will happen with AIGA's standard design agreement, that we started hosting this week. We want to enable even a young, inexperienced designer to say: "hey client, let's sign this document, vetted by the leading design association of the country. This document clearly works for other designers, so you better explain me any change you want to make."

BC: Wow. But I take it is still important that the baseline, originating document be good? You mention Gunderson and AIGA, as if it matters for people to relate the documents to a source they respect.

VP: Ken Adams, in your back and forth with him, has a point about quality, and he's not alone. We are working hard to get good documents, from reliable sources. It's not always easy, also because every lawyer thinks he's the best... But sometimes it doesn't have to be black or white, there's space for compromise. An English guy named Daniel Maxwell did a great analogy with the light bulb, highlighting the role of standards in the industrial progress. Sometimes, we don't need goods or services to be perfect, we need them to be good enough, because the advantages greatly overcome the disadvantages.

Screenshot from the Docracy site is of the AIGA contract Veronica cites.

As Angels Spread Wings, Senators Corral Crowds

At the ACA Summit in Austin earlier this month, I met two people who used the phrase "crowdfunding for angels." They were speaking of online platforms or broker-dealer businesses that look to make the business of offering and syndicating private offerings more Kickstarter-like, though the "crowds" would be limited to accredited investors.

(Aside, possibly for future development: not all emerging companies want to participate in more transparent processes for sourcing their private growth capital; not how some of the hotter social media companies no longer make Form D filings. If that pattern of choice persists, then many private companies may forego the benefits of the lifting of the prohibition on general solicitation and general advertising, which is confined to deals claiming the exemption under Reg D Rule 506.)

Well, the McHenry broker-dealer safe harbor for angel platforms and incubators is going to make it easier for angels to identify, vet and syndicate deals. Because general solicitation will be okay as long as the startups are claiming the Reg D Rule 506 exemption and limiting the deal to accredited investors, startups will be able to expose themselves to the increasingly networked angel networks. This combination of policy is expressed in a single title of the JOBS Act, Title II, which holds both what had been the McCarthy bill and the McHenry safe harbor. (The text of that Title is at the end of this post.)

Far-from-madding_1690242iBut as angels spread wings, as digital investors finally see the advent of digital rules, you can't help but mark the contrast in how non-accredited crowdfunders were pulled back from the similar ability to network, to give full play to the "wisdom of the crowds." Whereas the McHenry crowdfunding bill had made it a requirement of the exemption that startups provide a forum "that permits the issuer and investors to communicate with one another,” the Merkley/Brown corrective decrees that companies seeking equity crowdfunding must “not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker.”

Instead of an equity crowdfunding exemption that looks like Kickstarter - and instead of the kind of crowdfunding that Title II of the JOBS Act will effect for angel investors and startups seeking only angel capital - the Senators gave would be crowdfunders-for-average-people what is essentially a small company offering registration, complete with required disclosures, and enhanced with additional personal liability for directors and officers.

McHenry’s crowdfunding bill seemed to get that there was something new going on with crowdfunding, something animated by the internet and ubiquitous, instantaneous and networked communication, that might permit “crowd wisdom” to ferret out the necessary information and end up being more effective at protecting investors – at least at the micro-, retail level – than the traditional securities law paradigms of registration, mandatory disclosures, and tight control of information. The Senate completely rejected that premise, and that possibility.

Check that - the Senate rejected the premise and the possibility as to crowdfunding for the masses. In keeping Title II of the JOBS Act intact, the Senate in effect accepted that "crowd wisdom" will work as long as the crowd is limited to accredited investors.



    (a) Modification of Rules-
    (1) Not later than 90 days after the date of the enactment of this Act, the Securities and Exchange Commission shall revise its rules issued in section 230.506 of title 17, Code of Federal Regulations, to provide that the prohibition against general solicitation or general advertising contained in section 230.502(c) of such title shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers of the securities are accredited investors. Such rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission. Section 230.506 of title 17, Code of Federal Regulations, as revised pursuant to this section, shall continue to be treated as a regulation issued under section 4(2) of the Securities Act of 1933 (15 U.S.C. 77d(2)).
    (2) Not later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission shall revise subsection (d)(1) of section 230.144A of title 17, Code of Federal Regulations, to provide that securities sold under such revised exemption may be offered to persons other than qualified institutional buyers, including by means of general solicitation or general advertising, provided that securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe is a qualified institutional buyer.
    (b) Consistency in Interpretation- Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended--
    (1) by striking `The provisions of section 5' and inserting `(a) The provisions of section 5'; and
    (2) by adding at the end the following:
    `(b) Offers and sales exempt under section 230.506 of title 17, Code of Federal Regulations (as revised pursuant to section 201 of the Jumpstart Our Business Startups Act) shall not be deemed public offerings under the Federal securities laws as a result of general advertising or general solicitation.'.
    (c) Explanation of Exemption- Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended--
    (1) by striking `The provisions of section 5' and inserting `(a) The provisions of section 5'; and
    (2) by adding at the end the following:
    `(b)(1) With respect to securities offered and sold in compliance with Rule 506 of Regulation D under this Act, no person who meets the conditions set forth in paragraph (2) shall be subject to registration as a broker or dealer pursuant to section 15(a)(1) of this title, solely because--
    `(A) that person maintains a platform or mechanism that permits the offer, sale, purchase, or negotiation of or with respect to securities, or permits general solicitations, general advertisements, or similar or related activities by issuers of such securities, whether online, in person, or through any other means;
    `(B) that person or any person associated with that person co-invests in such securities; or
    `(C) that person or any person associated with that person provides ancillary services with respect to such securities.
    `(2) The exemption provided in paragraph (1) shall apply to any person described in such paragraph if--
    `(A) such person and each person associated with that person receives no compensation in connection with the purchase or sale of such security;
    `(B) such person and each person associated with that person does not have possession of customer funds or securities in connection with the purchase or sale of such security; and
    `(3) For the purposes of this subsection, the term `ancillary services' means--
    `(A) the provision of due diligence services, in connection with the offer, sale, purchase, or negotiation of such security, so long as such services do not include, for separate compensation, investment advice or recommendations to issuers or investors; and
    `(B) the provision of standardized documents to the issuers and investors, so long as such person or entity does not negotiate the terms of the issuance for and on behalf of third parties and issuers are not required to use the standardized documents as a condition of using the service.'.
    `(C) such person is not subject to a statutory disqualification as defined in section 3(a)(39) of this title and does not have any person associated with that person subject to such a statutory disqualification.
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