Stubbs Alderton & Markiles, LLP announced that it represented client Aqua Membranes in its $2.1M Series A-1 Financing round. Aqua Membranes is a unique technology that is perfect for spiral-wound membrane manufacturers eager to improve their product performance and whose customers demand more durable, low maintenance elements that can withstand challenging feed streams.
For the full press release regarding the Aqua Membranes $2.1M Series A-1 Financing, click here.
SA&M Attorneys Advising Aqua Membranes in this transaction included:
Caroline Cherkassky: Caroline Cherkassky is a Partner of the firm. Caroline's practice focuses on advising venture capital firms, angel investors, and emerging growth, development stage, and middle-market companies on a variety of matters, including venture capital and other financings, employee compensation, securities laws compliance, technology transactions, mergers and acquisitions, stockholder agreements, equity incentive plans, corporate governance, and other general corporate matters. She regularly serves as outside general counsel to early-stage companies and also advises executives regarding employment and compensation matters. Caroline is a frequent speaker on fundraising essentials for emerging growth companies.
Scott Alderton: Scott Alderton is a Founding Partner of the Firm, Managing Partner, and a member of the Firm’s executive committee. Scott is also co-chair of the Firm’s Venture Capital and Emerging Growth practice group. Scott advises clients across a number of industries, including software, technology, digital media, interactive entertainment and video games, cyber security and life sciences. Scott’s practice focuses on advising early stage to middle-market technology and emerging growth companies in all aspects of capital formation, venture capital and finance, corporate and securities laws, mergers and acquisitions, high technology, intellectual property, licensing, interactive entertainment and video games, the internet, digital media, manufacturing and distribution of goods in commerce and commercial contracts. Scott also regularly advises senior executive officers with respect to employment, compensation and equity incentives. Scott is frequently referenced as one of the top “start-up” lawyers in Southern California, and with over thirty years of experience working with technology and emerging growth companies at all stages along their evolutionary path, is sought out for his business as well as legal advice. Scott is a frequent speaker on matters relating to technology, intellectual property, capital formation, capital raising transactions and emerging growth companies, and was formerly an adjunct professor of law at Loyola Law school, teaching securities regulation.
About Stubbs Alderton & Markiles’ Venture Capital & Emerging Growth Practice
As a result of the Firm’s deep roots in the emerging growth market, Stubbs Alderton & Markiles understands the unique practical business needs of early-stage and high-growth companies. The Firm typically acts as outside general counsel to its emerging growth clients, including participating in board-level discussions and serving as an extension of the management team. The Firm strives to understand its clients’ business and markets and give them senior-level attention, which enables the Firm to provide practical and cost-effective legal advice. Representing private companies as they seek funding from venture capital firms, angel investors or other investors has been a key component of the Firm’s practice. The Firm also represents and has extensive relationships with the most prominent venture capital firms and angel investor groups in Southern California. The Firm has extensive experience in advising on a wide range of financing structures, including seed and angel investor financings, venture capital investments, private equity and other institutional financings, bridge loans, and PIPE transactions for public companies. The Firm’s representation of cutting-edge companies and leading investors allows it to stay apprised of developing market trends and, where appropriate, to make introductions to investors and companies.
Stubbs Alderton & Markiles, LLP announced that it represented client Milk and Eggs in its $2.5M financing round led by Morningside Venture Investments.
Milk and Eggs is a farm-fresh grocery delivery service. Their goal is to connect customers to great farmers. Customers sign up for subscriptions of milk, eggs, dairy, meats, vegetables, and fruit on a weekly or bi-weekly basis, with free membership and delivery and the ability to change orders at any time. All vegetables, fruits, dairy, eggs, and meats will be the freshest available as they are locally acquired. And, with an environmentally friendly aggregation and delivery system, it’s a win for their customers and the environment.
SA&M attorney that represented Milk and Eggs was Joe Stubbs
For more information about our Venture Capital & Emerging Growth practice, contact Joe Stubbs at .
Stubbs Alderton & Markiles, LLP client Atomico Ventures announced that it led the $51M investment round to EdTech veteran Knewton. Other investors included GSV Capital, as well as previous backers Accel Partners, Bessemer Venture Partners, First Round Capital, FirstMark Capital and Founders Fund, along with debt financing from Silicon Valley Bank.
Knewton is an education technology company that personalizes digital courses so every student is engaged and no one slips through the cracks. As students progress through a Knewton-powered course, Knewton figures out what each student knows and how that student learns best, then recommends what to study next. Teachers use Knewton-powered predictive analytics to detect gaps in knowledge and differentiate instruction for each student.
Knewton plans on using the funds to expand its company into a global business, including adding 80-100 new employees to strengthen its existing data science and engineering teams, and moving into a new, larger headquarters in NYC.
To read the full press release on Tech Crunch, click here.
About Atomico Ventures
Atomico is a growth stage international investment firm, focused on helping the world’s most disruptive technology companies scale and reach their full potential globally. Founded by Niklas Zennström, the co-founder of Skype, they have become the investor of choice for ambitious entrepreneurs due to their experience of building global companies, unique international network, and ability to help companies operationally, with offices in London, Beijing, São Paulo, Istanbul and Tokyo.
For more information about our Venture Capital & Emerging Growth practice, contact Scott Alderton at (818) 444-4501 or
Los Angeles, August 22, 2013 - Stubbs Alderton & Markiles, LLP has announced that it advised client Morphlabs, Inc., the leader in efficient and powerful OpenStack(R) solutions for service providers and the enterprise, in its $10 million Series D financing. The round, which was led by Tallwood Management and Entropy Research Lab and also included existing investor G2iG, brings the total capital raised by the company to $22.5 million since inception. Morphlabs will use the proceeds from this round to extend the company's leadership position in the Asia OpenStack market through an aggressive training and seminar program, and through its partnership with NEC.
To read the full press release regarding the funding, click here.
What is a convertible promissory note?
A convertible promissory note is a debt instrument that is convertible into equity at a future date either automatically upon the occurrence of certain events or at the choice of the investor. Even though it is a debt instrument, investors who purchase convertible promissory notes issued by a start-up company are expecting the notes to convert into equity at a future date, since equity (unlike straight debt) allows investors to participate in the upside of the company. A simple return of principal and interest is not attractive to an early stage investor who is taking tremendous risk in funding a start-up. To compensate investors for the risk they are taking, the notes sold are often convertible at a discount to the price of the next preferred equity round and will also contain a “cap” – or a maximum conversion price - on the price at which the note will later convert.
What is preferred stock?
Preferred stock is an equity ownership interest in a company with certain features that are designed to protect an investor’s investment. For example, investors in preferred stock typically receive cash distributions before holders of common stock and also receive certain rights relating to the control of the company, such as board representation and the right to veto certain company activities.
Why do start-up companies and investors sometimes prefer the sale of convertible promissory notes over equity to finance a startup?
Convertible promissory notes are sometimes used to finance start-up companies when the prospective investors lack the sophistication to properly price an equity round, when the size of the financing does not warrant the costs of a traditional preferred stock financing or when the company and the investors want to avoid pricing an equity round. In addition, convertible note financings are often used because they are perceived to be quicker and cheaper to structure and document than preferred stock financings.
What are some of the risks for investors financing a start-up through a convertible promissory note?
Even though convertible notes often contain price discounts to the next equity round and conversion caps, purchasers of convertible notes are often not sufficiently compensated for the risk they are taking in financing a start-up. Caps are often set at a premium to the company’s value at the time the notes are issued and discounts may not be adequate, especially as the time between the issuance of the notes and the priced equity round increases. Moreover, initial investors are subject to the risk that later investors, who often have greater bargaining power (especially if a company is in dire need of financing), will attempt to renegotiate the terms of the promissory notes to their detriment.
Convertible notes also may not adequately compensate early stage investors to the extent the investors provide resources to the company, such as key customer or supplier introductions, or otherwise add credibility or other value to the company. If the value of the company rises substantially as a result of the investor’s efforts, the investor is ultimately increasing the price they will pay for their own equity in the company, which is clearly a perverse outcome.
What are some of the risks a company that issues convertible promissory notes faces?
Convertible notes work well for start-up companies when the value of the company increases between the time of the debt financing and a preferred stock financing. However, if the value of the company falls, investors who purchased convertible notes may end up owning more equity in the company then the company anticipated at the time of the debt financing. This occurs because the price discount feature often included in the notes enables the investors to purchase equity at a price below what they would have paid at the time they purchased the convertible notes. Moreover, because the purchased equity often contains a liquidation preference, in addition to obtaining a larger equity position in the company at the expense of the founders, investors will also likely obtain an increased preference over the founders to the cash of the company in the event of a sale, dissolution or winding up of the company. Another downside of convertible notes is that, in the event a convertible note is not converted into equity prior to its maturity, investors could demand that the note is repaid with principal and interest, or potentially force the company into bankruptcy if the loans cannot be restructured.
Conclusions
The issuance of convertible promissory notes can be an effective means for start-up companies to raise capital. However, before raising capital through the issuance of promissory notes, investors and companies need to carefully evaluate the risks associated with the issuance of promissory notes in comparison to other financing alternatives.
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Jonathan Friedman discusses how convertible promissory notes often provide a fast and cheap way for start-up companies to raise capital. However, before raising capital through the issuance of promissory notes, companies need to evaluate the potential impact of convertible debt on the company’s future capital structure, and investors need to evaluate whether a straight equity investment is preferable to the purchase of debt. Jonathan’s practice focuses on venture capital and corporate finance, intellectual property licensing, mergers and acquisitions, securities law and general corporate and business matters. Jonathan has represented corporations and other entities in a wide variety of industries, including Internet and e-commerce, apparel, medical devices, entertainment and high technology.
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For more information regarding promissory notes, raising capital, or similar inquiries, please contact Jonathan Friedman at (818) 444-4514 or .
Dun & Bradstreet Credibility Corp., headed by SAM client Jeffrey M. Stibel, the former CEO of Web.com and former GM at United Online, completed its most recent financing transaction for $100M. Dun & Bradstreet said Thursday afternoon that it has secured $100M in financing from Great Hill Partners. The firm said it has also acquired the North American Credit-on-Self division of D&B (NYSE: DNB), in a deal worth approximately $100M. The firm said that Dun & Bradstreet Credibility Corp. will provide a service to help businesses to establish, monitor, and build their business credit and credibility. Stibel serves as Chairman and CEO. The company also said that Great Hill Partners has committed an additional $100M above and beyond the purchase price, to invest in the business. Stibel sits on the boards of Los Angeles-based CDN Edgecast, Irvine's Autobytel, Los Angeles-based The Search Agency, and other firms.
To view the SoCal Tech article regarding the financing, click here.
To view the SoCal Tech interview with Jeffrey Stibel, click here.