Structuring Venture Capital Financing: Amended NVCA Model Agreements and Special Issues Faced by Certain Industries, Strategic Investors, and Foreign Investors

Venture capital financing has remained active during the pandemic, but deal terms continue to evolve. When documenting and closing a venture capital transaction, counsel must have a thorough understanding of the deal terms, market differences in early- or late-stage financing, industry-specific factors to consider, and investor-specific factors to consider.

Early stage deal structure may take the form of a convertible promissory note, simple agreement for future equity (SAFE), preferred stock (corporations) or preferred units (LLCs). Counsel must consider the functional pros and cons as well as the tax ramifications of each. Negotiated provisions include the composition of the board of directors, protective provisions/veto rights, anti-dilution, and other market investor protections.

On July 28, 2020, the NVCA released updates to its model documents for use in venture capital transactions. Perhaps most noteworthy is the inclusion of the provisions reflecting new final regulations implementing the Foreign Investment Risk Review Modernization Act of 2018, which expanded the review of foreign investments by CFIUS. However, there are also significant changes unrelated to CFIUS.

Listen as our experienced panel will discuss the following issues relating to structuring and documentation of venture capital transactions.