5th
Form D and PR Consequences
Privately to clients we’re always giving (often belated) instructions related to Form D filing consequences.
Today, Dan Primack, one of the most skillful journalists out there at scouring filings for news, gives some good advice:
Last week we broke news about a new later-stage fund being raised by Union Square Ventures, which also is in market with its third early-stage fund. The fund strategy info came from a source, but the dollar amounts came from an Form D filing with the SEC.
USV, of course, declined to comment sue to regulatory restrictions. Partner Fred Wilson did, however, write a blog post about how Form D filings can catch issuers off guard, since they typically are submitted by outside counsel:
So when you are getting close to finalizing a funding transaction, be sure to talk this issue through with your lawyers so that you are in control of the substance and timing of the message.
Good advice. And here’s an addendum: If you are an attorney representing a Form D issuer, don’t wait for your client to initiate the conversation. Just throwing a bunch of papers in front of a startup CEO of venture capitalist to sign, and assuming they’ll figure out the consequences, is a bit presumptuous. They’ll thank you for it.
Yup.
Sorry if I’m being pedantic here, but you have up to 15 days (if I remember correctly) from the close of the transaction before you have to file the Form D, though lawyers usually do it immediately because they don’t think twice. The filings are then publicly available generally 3-5 business days after that.
Among other things, the amount of the financing, the names of executive officers and directors, etc. are also in the filing.
Reporters like Dan typically runs a feed or scrape for certain keywords against EDGAR for example, and Techcrunch actually has interns who do this in real-time for Crunchbase, and send along interesting findings to the editors, etc.
Basically, assume that people are paying attention.
So you can have your lawyers delay on both the closing and the filing to buy a few weeks, but my counsel is that you ought to control/shape the story before it is shaped for you.
Pro tip: name your company something vague and inane, e.g. “Widget Corp America” and then your brand can be the DBA. This way, the work needed to uncover the news behind a filing is all the more difficult, and it helps.
That is — the filing will say that “Widget Corp America” raised a big A round, but only the most clever reporters will attach the company name to the DBA or brand — ie the actual name that people know you as.
UPDATE: (got some good feedback on this post): Another important point is that in some cases it is probable or even obvious that you have an exemption from the securities laws registration requirements — which would allow your compamy forgo it altogether.
Why?
Because the filing of the form is a step to ensuring you have a “safe harbor” exemption, but is not always the only way to skin the cat. So if you are really wanting to be stealth and you feel good enough about your exemption you may opt not to do one at all. Consult with a lawyer of course…
So, ask you lawyer about filing a 4(2) transaction as an alternative. you’ll have to take on some semi-burdensome additional state-level filings (which journos don’t typically monitor), but as long as all your people are accredited and your exemption house is in order, you might be able to avoid the disclosure issue altogether.
The more you know….
