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