Mashtag
Not my usual subject matter, but felt compelled to write about this:
Civil libertarians, journalists and others are understandably outraged by the recent news of a DOJ investigation that included obtaining APwriters’ phone records. It’s skating on thin constitutional ice to have government agents investigating whom members of a free press contact and when, and it merits careful oversight to avoid abuses. Nevertheless, based on what we know to date, I think the DOJ did the right thing, and here’s why:
This wasn’t a leak about some garden-variety (pun intended) pot-growing or cocaine-smuggling operation about to get busted, or even a bribery scandal involving high-ranking public officials. It didn’t involve “whistle-blowing” on any wrongful government behavior. This leak reportedly related to the successful infiltration of freakin’ al Qaeda in Yementhat effectively prevented a planned terrorist attack using an advanced type of bomb that is allegedly undetectable by airline security. A Saudi double agent with cojones of steel managed to get himself chosen as the lucky volunteer to be be the suicide bomber — then made off with the bomb, delivered it to the good guys for analysis, and vanished. That’s the kind of incredible espionage story with a happy ending that I’d expect to see in a Hollywood thriller, not real life.
http://www.zennie62blog.com/2013/05/16/white-house-benghazi-emails-release-show-susan-rice-was-scapegoat-44691/
White House Benghazi Emails Release Show Susan Rice Was Scapegoat
The White House has released a large file of emails related to the…
This Quora question came up again in recent conversations with a client, so I thought it might be a good idea to dust off my answer and post it here. Hope some folks find it helpful.
This sort of arrangement may exist in rare cases, but it is frankly unheard of in the venture-backed startup world. It makes no sense for two reasons: First, if the valuation of the company is stable or increases, a future financing round causes percentage dilution but not economic dilution — that is, you’re cutting the pie into more slices, but it’s a bigger pie than you started with, so your economic interest is not being diluted at all. A “fixed percentage” arrangement totally disregards that and makes all of the other stockholders pay a penalty by diluting them more. Perhaps more importantly, it’s contrary to the traditional way entrepreneurship works in a market economy. Entrepreneurs invest in the company through “sweat equity” and see the value of their shares rise over time along with value creation in the business. If new investors come along and put more money into the company at a higher valuation, they get fewer shares per dollar and the company gets that cash on its balance sheet, which is accretive rather than dilutive on an economic basis.
But what about a “down round,” you may ask? I would turn the question around and ask, who is running the company? If management is destroying value (or allowing it to deteriorate) rather than creating it, it generally doesn’t make sense to reward that with more shares. (In exceptional cases, such as certain turnaround scenarios, the Board can always make additional stock option grants to the management team as merited by performance.) This is the fundamental reason why founders, employees and service providers almost always get common stock in a startup, whereas investors get preferred stock (with anti-dilution protection, as well as other goodies like liquidation preferences). In fact, the very mechanism of anti-dilution in VC financings relies on that structure by adjusting the conversion ratio of Preferred to Common based on a formula, so if you already hold Common, that wouldn’t help.
To directly answer the question, “What kind of legal agreement can create a situation like this?” the answer would be any contract — oral or written, express or implied — that promises someone a fixed percentage of equity along with some kind of guarantee or assurances that their position won’t get diluted. Making this sort of promise has created many a mess for litigators to clean up over the years. If it’s a binding contract, the company has no choice but to issue more shares or be liable for breach.
As background, there are two basic types of anti-dilution provision, structural and price-based. Structural anti-dilution protection is designed to automatically compensate for things like stock splits, reverse splits, and stock dividends. It’s a no-brainer and either exists in the documents or is implied as a matter of fairness and common sense under most circumstances. Price-based anti-dilution protection, as most VCs and angels get in financing deals, is meant to compensate for the company doing a “down round” (a future round of financing at a price per share lower than the last round). Going back to the pie analogy, imagine the pie is either the same size or shrinking and is getting sliced into more pieces to include the new investors. Price-based anti-dilution gives some extra slices to the investors from the last round to help compensate. Of course that means the common shareholders are diluted even more.
I usually encourage founders to move away from thinking in terms of percentages and start thinking in share numbers as soon as possible. Other than for certain governance matters that are subject to a shareholder vote (e.g., selling the company), or “magic numbers” for purposes of accounting (19.9% vs. 20%) or SEC reporting (5% or 10%), percentages really don’t matter all that much. You’re better off with 1% of a billion-dollar company than 10% of an $80MM company. If you do want to talk percentages, the right way to approach it is to frame everything in terms of the company’s current fully diluted capitalization. So in the hypothetical CEO case, offer him or her a number of shares that will be equal to 25% of the total outstanding on a fully diluted basis (i.e., assuming the exercise of options or warrants) as of the hire date. Whatever number of shares that turns out to be, it’s the CEO’s job to make them worth more, not to be handed more shares.
Post by Antone Johnson:
Spark Capital agrees to pay its own legal fees for venture deals (!)View Post on Quora
A recent court ruling against Grooveshark demonstrates some structural failures in Congress’ efforts to provide websites with safe harbors for user-caused copyright infringement
Terrible court ruling further muddies the waters, increases risk of catastrophic liability for user-generated content (social media) sites and services through which users may upload pre-1972 works. Prof. Eric Goldman explains in this detailed Forbes piece.
Oops: Conservative group (badly) photoshops out minorities in mailer opposing pro-voting legislation.
Uhh.
A new low: Photoshopping two dark faces out of a stock photo of citizens waiting in line to vote. Literally the face of voter suppression. This makes me physically ill. The people who produced this mailer are the ones who should have their citizenship questioned.
The Center for American Progress is a DC based think tank that works on several policy issues, including energy, national security, immigration, education, and health care.
They’re starting to get involved in climate adaptation, which is the process of lowering risk from environmental harms. And they recently published an interesting paper that aims to motivate the Federal Government to invest in America’s infrastructure and resilience policies. For those new to the issues of resilience, this makes for a decent primer. For those familiar with the concepts, the section on making the business case might be most interesting. The paper is here. Below is an edited excerpt:
It is time for a national strategy for infrastructure resilience
There are three parts to forming a national strategy for infrastructure resilience. First, the federal government should launch a national infrastructure-vulnerability assessment that evaluates the ability of the nation’s current infrastructure to withstand climate-related extreme weather. Second, the Obama administration should build on the proposals laid out in its FY 2014 budget and harmonize financial resources to invest in these resiliency projects in a coordinated way. Third, the administration should elevate resiliency as a priority by tasking cabinet-level officials to work systematically with cities and states in directing these resources.
A national strategy is needed to reduce infrastructure vulnerability to climate change. If we don’t, then federal funding for disaster relief becomes much more expensive.
For this reason, it is essential that the federal government tightly link its work on infrastructure investment as an engine of economic prosperity with the expanding priority it has placed on resilience.
We recommend that the president, Congress, mayors, and governors work together to make an immediate commitment to design a national strategy for infrastructure resilience.
To realize this plan, the president should act immediately to:
1. Launch a national infrastructure-vulnerability assessment: Improve the availability and usability of information on infrastructure needs and resilience. It would look systematically at the ability of U.S. transportation, energy, water, communications, and other strategic infrastructure to hold up to both current and future threats.
2. Establish a comprehensive federal infrastructure-investment strategy: This would build on recent commitments in the administration’s budget plan, and would both access new financial tools and better harmonize existing financing authorities within the federal government to more effectively leverage public and private capital in priority-infrastructure investments.
3. Create an infrastructure and resilience council: The council would function as a working group within the president’s own cabinet to support presidential leadership in improving coordination across all federal agencies and in partnering with cities and states to accelerate the development of these priority-resilience projects by increasing public and private investment.
President Obama has already taken important steps to lay the foundation for a national infrastructure-resilience plan. In Executive Order 13514, signed into effect in October 2009, the president called on agencies to “evaluate agency climate-change risks and vulnerabilities to manage the effects of climate change on the agency’s operations and mission in both the short and long term.”
Since 2009 the Interagency Climate Change Adaptation Task Force—led by the White House’s Council on Environmental Quality, the National Oceanic and Atmospheric Administration, and the Office of Science and Technology Policy—has been coordinating federal actions to reduce climate-change risks to federal assets and communities.
In February 2013 executive agencies released their plans to begin adapting to climate change. Additionally, the administration has already adopted national-action plans overseen by the Environmental Protection Agency to safeguard our oceans, fresh water, and fish, wildlife, and plants from the worst impacts of climate change. Though agencies have yet to develop a national resilience strategy for public infrastructure, Executive Order 13514 and the real rising risks of climate change give them the clear authority to do so.
Read the rest, here.
(via emergentfutures)
Zach Buerkle, a Wentworth Institute of Technology student, drapes himself with an American flag while looking down Boylston St. on Monday, April 15, 2013, after an explosion at the finish line of the Boston Marathon killed at least three people and injured more than 100. Buerkle was a block away cheering on a friend’s mother when the blast happened. (Jacob Belcher/UPI/Newscom)
My favorite slide from Dan Olsen’s deck, a walk down memory lane to May 2004 when I started working for MySpace (and its parent company Intermix Media):
