bridge financing corporate training lunch june 18, 2010 ben straughan
TRANSCRIPT
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BRIDGE FINANCING
Corporate Training LunchJune 18, 2010
Ben Straughan
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What is a Bridge Financing?What is a Bridge Financing?
Debt Feature - Loan from one or more investors to the Company
Equity Feature – Expected to convert to equity if anticipated financing occurs
Bridge v. pier
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Why Bridge?Why Bridge?
Fast
Avoid valuation issue
Investor commitment
Gain control over smaller investors
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ValuationValuation
Preferred Stock Valuation - Negotiating Leverage Valuation Ceilings Discount off preferred valuation Warrant coverage
Time
Common Stock Valuation Tax/409A
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Why Invest in a Bridge?Why Invest in a Bridge?
Ensure access to hot deal
Keep Company moving forward
Better return in exchange for higher risk
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When Bridge?When Bridge?
Pre-seed or pre-first round
Expected financing
"Down" round
Expected sale
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DocumentationDocumentation
Term Sheet
Note Purchase Agreement
Convertible Promissory Note
Warrant
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Term SheetTerm Sheet
Keeps deal on track
Offering tool
Usually non-binding
Economic Terms/sweetener
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Purchase AgreementPurchase Agreement
Representations and warranties Company representations Investor reps for securities compliance
Minimum amount for initial closing
Affirmative / Negative Covenants
Managing multiple purchasers
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Convertible Promissory NoteConvertible Promissory Note
Term / Maturity Date
Interest
Conversion
Automatic vs. Optional Triggering Events
Qualified Financing Passage of Time Corporate Transaction
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SweetenersSweeteners
Discount on Conversion
Warrant "Warrant Coverage" Term Cashless exercise
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Convertible Note (cont'd)Convertible Note (cont'd)
Miscellaneous Clauses
Prepayment Participation Milestones Security / Subordination Default / Acceleration Amendment by majority in interest
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Bridge Tax IssuesBridge Tax Issues
Imputed interest for low rates
Original Issue Discount ("OID") issues Warrant Penny warrants
Common Stock Valuation
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Securities ComplianceSecurities Compliance
Analyze exemption
Consider Form D for bridge and subsequent conversion
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OtherOther
Review Charter, financing agreements
Interest calculation on conversion
Noteholder waiver if no "qualified financing"
Interim LLC Funding
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Practical TipsPractical Tips
Expense of financing
Speed
Check consent requirements, financing documents
Carries debt remedies