Here. Includes “a high level summary of what you need to know about the AIFMD”.
The Financial Services Authority today published its second consultation on rules and guidance to transpose the Alternative Investment Fund Managers Directive into national law (the first FSA consultation is here).
On 14 March 2013 HM Treasury published a further consultation on the transposition of the AIFMD into UK law (here is our post on the January 2013 Treasury consultation).
The consultation document is here; the accompanying press release is here; and the draft regulations published alongside the consultation (“The Alternative Investment Fund Managers Regulations 2013″) are here.
From the press release:
The European Parliament today approved the Commission’s draft regulation for an EU-wide venture capital passport. The Commission’s response welcoming the Parliament’s approval is here. Excerpt:
“Next steps: After the vote in the European Parliament, the Council is expected to adopt both Regulations on 21 March. Both Regulations will then enter into force 20 days after their publication in the Official Journal of the European Union which is estimated to be before the summer.”
The Commission’s page on the proposed passport is here.
More on the VC passport here.
Here, published on 11 February 2013.
London Stock Exchange’s new “High Growth Segment” for high growth companies with minimum market cap of £300 million: announcement and draft Rulebook
This morning London Stock Exchange announced its new “High Growth Segment” of the Main Market. The HGS is aimed at fast-growing companies aspiring to be included in the Premium Segment of the UKLA’s Official List. In the words of the Exchange:
“Market feedback from investors, sell side participants and the venture capital community confirms there are a significant number of UK and European businesses with ambitious development plans that are currently under-represented on the equity markets. This segment is part of the solution – it will provide greater choice for companies seeking capital and investors seeking growth opportunities.”
The HGS will be a segment of the EU’s EU regulated market and so the EU financial services directives (including the Prospectus Directive) will apply. The HGS will not be part of the Official List, with the Exchange explicitly designing the HGS as a “transitional route” to the Official List.
Key issuer eligibility criteria are:
“The story goes that someone once remarked of Morrison that he was his own worst enemy, and Bevin immediately butted in to say “Not while I’m alive, he ain’t”.”
Pace Bevin, private equity is not short of enemies; but as this write-up (“Private equity bans the press“) of a conference today at the LSE by Dan Dunkley of PE News shows, sometimes the industry doesn’t help itself.
The BVCA commented on 25 January 2013:
“This week the London School of Economics held its annual Alternative Investments Conference, an event at which the press were excluded from some sessions. At the time of writing that has been reported by both Private Equity News and City AM. Whilst not all sessions were subject to a media ban, and others appear to have been implemented through over-zealous policing by the organisers, the fact that some were sends out a damning signal, presenting the industry in the worst possible light and opening us up once again to charges of secrecy. In this post-financial crisis world when accountability and transparency have rightly risen to the top of the corporate agenda, banning the press from public events can do nothing but harm the reputation of private equity and derail all the good progress we have made in the last five years.”
Published today. From the abstract:
“We examine the determinants of successful exits in European venture capital transactions and compare them to US transactions. Using survival analysis, we show that for both regions the probability of exit via an initial public offering (IPO) has gone down significantly over the last decade, while the time to IPO has gone up – in contrast, the probability of exit via trade sales and the average time to trade sales do not change much over time. Contrary to perceived wisdom, there is no difference in the success rates of European and US deals from the same vintage year with respect to IPO exits, while Europe has about an eight percentage point lower probability of exit via trade sales than the US. Venture success has the same determinants in both Europe and US, with more experienced entrepreneurs and venture capitalists being associated with higher probabilities of exit. The fact that repeat or ‘serial’ entrepreneurs are less common in Europe and that European VCs lag US VCs in terms of experience explains the remaining difference in performance. Finally, and contrary to perceived wisdom, we find no evidence of a stigma of failure for entrepreneurs in Europe.”
AIFMD: ESMA consults on guidelines on key concepts, and on draft regulatory technical standards on types of AIFMs
The European Securities and Markets Authority launched two AIFMD-related consultations on 19 December 2012:
Consultation on guidelines on key concepts of the AIFMD.
- Consultation on draft regulatory technical standards on types of AIFMs.
From the press release:
“The European Securities and Markets Authority (ESMA) has launched a consultation on Guidelines on key concepts of the Alternative Investment Fund Managers Directive (AIFMD). The Directive provides the legal framework for both alternative investment funds (AIFs) and their managers (AIFMs).
ESMA’s draft guidelines are aimed at clarifying the rules applicable to hedge funds, private equity and real estate funds. These proposals help to clarify what entities fall under the remit of the AIFMD, thereby creating a level-playing-field by providing for consistent application of the provisions throughout the EU. In order to achieve this, the guidelines set out the criteria for what is considered to be:
• a collective investment undertaking;
• capital raising;
• defined investment policy; and
• the number of necessary investors.
The draft Guidelines will contribute to the creation of a level playing field in the area of AIFs.
Draft Technical Standards on Types of AIFMs
ESMA has also issued a consultation on Draft regulatory technical standards on types of AIFMs, which are aimed at ensuring the uniform application of the AIFMD across the EU. These standards distinguish between managers of AIFs whose investors have the right to redeem their shares at least annually (open-ended AIFs), and those whose investors have less frequent redemption rights.
Both papers follow an earlier discussion paper published by ESMA in February. For some of the issues covered in that paper, which are not addressed in the consultations published today, ESMA will take into account the Commission’s Level 2 implementing measures before deciding on the appropriate next steps.
The closing date for responses to these consultations is 1 February 2013. The Guidelines and Technical Standards will be finalised in the first half of 2013.”
Sycamore Bidco v Breslin: warranties and representations / buyer knowledge on MBO / calculation of damages
The High Court gave judgment on 30 November 2012 in Sycamore Bidco v Breslin & Anor (on Bailii here). The lengthy, detailed judgment on this MBO transaction gone wrong (Dunedin were the private equity investor) discusses amongst other matters:
- Whether the warranties in the SPA were also representations (and if so, the differing measure of damages);
- Whether the knowledge of directors of the Target should be attributed to the Purchaser (given that those directors became directors of the Purchaser); and
- The calculation of damages for breach of warranty, including whether, despite a warranty breach, there was any loss at all.
The judgment is interesting principally for its narrative of how Dunedin went about assessing the transaction and for its careful consideration of how the Target was (or should have been) valued.
The Commission adopted the Delegated Regulation supplementing the Alternative Investment Fund Managers Directive on 19 December 2012. The Delegated Regulation can be read here.
From the press release:
“The AIFMD is part of the Union’s response to the financial crisis, and aims to create a comprehensive and effective regulatory and supervisory environment for alternative investment fund managers in Europe. The Delegated Regulation is a precondition for the application of the AIFMD in EU countries and was adopted to supplement certain elements of the AIFMD. These rules concern the:
- conditions and procedure for the determination and authorisation of AIFMs, including the capital requirements applicable to AIFMs;
- operating conditions for AIFMs, including rules on remuneration, conflicts of interest, risk management, liquidity management, investment in securitisation positions, organisational requirements, rules on valuation;
- conditions for delegation;
- rules on depositaries, including the depositary’s tasks and liability;
- reporting requirements and leverage calculation;
- rules for cooperation arrangements.
The Delegated Regulation adopted today is subject to a three-month scrutiny period by the European Parliament and the Council and will enter into force, provided that neither co-legislator objects, at the end of this period and the day following publication in the Official Journal.”
UPDATE 11 January 2013: Here is Nabarro on the implications of the Delegated Regulation.
The Private Equity Monitoring Group on Transparency and Disclosure has published its fifth report (December 2012) on compliance with the Walker Guidelines.
“For the Regulations to enter into force, the formal approval by the Council and the European Parliament is still needed. It is expected that the decision by the Council will follow the plenary vote in the European Parliament in early 2013.”
Delete “employee owner”, insert “employee shareholder”: Government publishes response to consultation on implementing employee ownership status
BIS has today published its response to the consultation which it launched on 18 October 2012 on its proposed new “employee owner status”, under which employees would sacrifice some employee rights in exchange for CGT-advantaged shares in their employer. We covered the consultation launch in this post.
The consultation response is here.
From the executive summary of the consultation response:
Chris Dixon, Shoehorning startups into the VC model
“A startup should raise venture capital (or “venture-style” angel/seed funding) only if: 1) the goal is to build a billion-dollar (valuation) company, and 2) raising millions of dollars is absolutely necessary or will significantly accelerate growth.
There are lots of tech companies that are very successful but don’t fit the VC model. If they don’t raise VC, the founders can make money, create jobs, and work on something they love. If they raise VC, a wide range of outcomes that would otherwise be good become bad.”
The comments are also worth reading.
The College of Law has been granted full University status and will now call itself “The University of Law”. Announcement here.
The College is a for-profit body owned by Montagu Private Equity.
Website here. Excerpt:
“The Seed Enterprise Investment Scheme, also known as SEIS, aims to encourage investment in small and early stage companies by reducing the risk to investors of investing in these types of companies. The Government introduced the SEIS as a way to promote new enterprise and boost economic growth in the UK.
The objective of this site is to provide investors and entrepreneurs with information about the SEIS and other forms of investment. You can learn about how the SEIS works, who qualifies to make SEIS investments and which companies can access SEIS money.”
More on the SEIS here.
Anthony Hilton in the Evening Standard on why allowing companies to offset debt interest against tax should be stopped.
A good survey from the New York Times here.
“London’s fast-growing start-up scene is trying to disrupt the financial status quo. As consumers’ trust in banks deteriorates because of a series of recent scandals, young companies are pressing their newcomer advantage. Firms are offering services like low-cost foreign currency exchange and new ways for small business to borrow cash.
Backed by venture capital firms like Index Ventures, the financial start-ups are taking on entrenched incumbents by using technology to pare back costs and improve the customer experience.”
New “employee owner” status: consultation published, Government to look at simplifying CA2006 share buy-back rules
The Department of Business, Innovation and Skills has today published its consultation on implementing the Government’s proposed new “employee owner status”, under which employees would sacrifice some employee rights in exchange for CGT-advantaged shares in their employer. The BIS press release is here and the consultation document is here (pdf).
Amongst the many thought-provoking aspects of the consultation document is a suggestion is that the Companies Act 2006 rules on share buy-backs might be relaxed after consultation (page 18):
Anthony Hilton in the Evening Standard reviews William Janeway’s new book “”Doing Capitalism in the Innovation Economy: Markets, Speculation and the State“. Excerpt:
Start-ups and growth companies: new “owner-employee” contracts will swap employment rights for CGT-exempt shares
The Chancellor announced the outlines of a new type of employment contract today, the premise of which is that an employee will give up some employment rights in exchange for CGT-exempt shares in their employee.
The Treasury announcement is here and its main points are set out below. As to how these shares would interact with good leaver / bad leaver provisions, all the announcement says (at note 2) is that the forthcoming consultation on the new contract “will include the details of restrictions on forfeiture provisions to ensure that if an employee-owner leaves or is dismissed, the company is not able simply to take the shares back but is able to buy them back at a reasonable price”.
From the FT’s zeitgeist-ridden editorial today:
“While much of Barack Obama’s rhetoric against private equity has the flavour of electoral pantomime, he is on firmer ground when he seeks to change the basis on which carried interest is taxed. There can be no justification for it being treated on the same basis as capital gains, rather than as income.
True, technically speaking, these profits are capital gains in that they arise from a capital investment. But as they are mainly gains on others’ capital, which private equity partners only receive by virtue of the jobs that they do, this is to all intents and purposes a payment for their services. As such, it should be taxed as income.”
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From the New York Times, Wilson Sonsini Retools Strategy to Land Internet Start-Ups:
“…reflects the firm’s evolving mind-set as lawyers jockey for the attention of start-ups. In an effort to build credibility among new technology companies, Wilson Sonsini and others are employing a broad set of tools, including offering free services, cozying up to incubators and writing blogs.
Such efforts are critical. While early-stage ventures represent just 20 percent of the firm’s business, those companies can generate hefty fees as they mature. Wilson Sonsini and other firms also make small investments in young start-ups, which can pay off in later years.
“Small deals would not have interested these firms a few years ago,” said Joseph A. Grundfest, a Stanford law professor. “Now, it’s the new normal.”
For years, Wilson Sonsini dominated Silicon Valley, shepherding young technology companies like Apple, Netscape Communications and even the ill-fated Webvan. In 1998, Lawrence W. Sonsini, the firm’s patriarch, introduced two Stanford graduate students to Sequoia Capital and Kleiner Perkins Caufield & Byers, two top venture capital firms. Six years later, Wilson Sonsini helped their company, Google, go public.”
See also: StartupCompanyLawyer.com, run by a Wilson Sonsini partner
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Who Got Funded, “a comprehensive website tracking all venture capital developments in every industry and region in the world”
“WhoGotFunded.com is a comprehensive website tracking all venture capital developments in every industry and region in the world. The website was developed as part of an ambitious web mining project led by Digimind, a global leader in competitive intelligence solutions, in conjunction with Daedalus, a company specializing in semantic analysis.
Aggregated on Quora here.
From SmartAsset, a calculator that in TechCrunch’s words “basically takes you through each event that can affect the division of a company’s equity. First you start with the founding — entering the total number of shares, each founder, and the equity that they receive. Then you enter employees and advisors and their equity. You can add multiple funding events and their details, and the eventual exit”. This is for US start-ups.
“Several private equity firms are planning to issue high-yield bonds to recapitalise portfolio companies and pay out dividends – a practice that has proved controversial in the past.” – good article from Financial News.
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This from Techonomy discusses difficulties with the crowdfunding model – from a US perspective, but much of it is applicable to the UK.
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