The CB Insights’ State of Venture Report for the third quarter of 2022 notes that global venture funding declined to $74.5 billion in the third quarter, down 58% from the funding peak in the fourth quarter of 2021.  This represents a quarter-over-quarter contraction of 34%, the largest quarterly percentage drop in a decade, with the number of deals declining by 10% to 7,936 – the lowest level since 2020.  European startups experienced the largest decline in funding with 1,584 deals raising $14.8 billion in the third quarter this year, a 36% drop quarter over quarter and a seven-quarter low.  The United States and Asia also saw sharp drops in quarterly funding with U.S. funding declining by 32% to $36.7 billion raised in 2,866 deals and Asia funding declining by 33% to $20.1 billion.

The number of companies that achieved unicorn status dropped across regions to 25, the lowest count since first quarter of 2020; 14 of these were in the United States.  There were 144 mega-rounds completed globally in the third quarter, which accounted for $29.6 billion in funding, representing a 44% quarter-over-quarter decline and a nine-quarter low.  While M&A exits continued to decline, IPOs and SPACs rebounded, with the number of SPACs reaching the highest level since 2021.

Early-stage investing constituted 66% of the overall deal share.  There was a 42% drop in median deal size for late-stage rounds, indicating investors’ shrinking appetite for late-stage Series E+ deals.  Asia led early- , mid-, and late-stage deal share in the last quarter.  By sector, global fintech funding declined by 38% to $12.9 billion in the third quarter 2022.  The retail tech and digital health sectors also saw sharp drops.  In the United States, Silicon Valley startups hit an 11-quarter low with $10.7 billion raised.

On 10 November 2022, the EU Parliament adopted the Corporate Sustainability Reporting Directive (“CSRD“). The EU Council is expected to adopt the CSRD on 28 November 2022, after which it will be published in the Official Journal. The CSRD will then enter into force 20 days after publication and EU member states will have 18 months to integrate it into national law. 

The CSRD will create new, detailed sustainability reporting requirements and will significantly expand the number of EU and non-EU companies subject to the EU sustainability reporting framework. The required disclosures will go beyond environmental and climate change reporting to include social and governance matters (for example, respect for employee and human rights, anti-corruption and bribery, corporate governance and diversity and inclusion). In addition, it will require disclosure regarding the due diligence processes implemented by a company in relation to sustainability matters and the actual and potential adverse sustainability impacts of an in-scope company’s operations and value chain.

Read the complete Legal Update.

On November 15, 2022, FINRA adopted amendments to revise the syndicate account settlement timeframe for offerings of corporate debt securities. The amendments to FINRA Rule 11880 establish a two-stage syndicate account settlement approach for public offerings of corporate debt securities. The amendments will become effective for public offerings of debt securities that commence on  or after January 1, 2023, and will exclude any such offering that commences prior to January 1, 2023.

FINRA added a new paragraph (b)(2) to Rule 11880. The addition provides that the final settlement of syndicate accounts for any public offering of a corporate debt security must be effected by the syndicate manager by remitting to each syndicate member at least 70 percent of the gross amount due to such syndicate member within 30 days, with any final balance due remitted within 90 days following the syndicate settlement date. The amended timeframe is limited to public offerings of “corporate debt securities,” which as defined in the rule is a “debt security that is U.S. dollar-denominated and issued by a U.S. or foreign private issuer, including a ‘securitized product,’ as defined by Rule 6710(m).” For purposes of Rule 11880, a “corporate debt security” does not include a “money-market instrument” as defined in Rule 6710(o). For purposes of clarification, public offerings of convertible debt securities are not within the scope of “corporate debt security” for the amendments to Rule 11880.

See amended FINRA Rule 11880 here. See FINRA Rules 6710(m) and 6710(o) here.

This practice note provides practical guidance for counsel working on a registered direct offering (RDO). An RDO is a public offering of securities sold on a best efforts basis by a placement agent engaged by an issuer to introduce the issuer to potential investors. An RDO is generally targeted to a select number of accredited and institutional investors, although it may be sold to non-accredited investors. Issuers find RDOs an attractive option when they are seeking to test the market or conduct an offering without attracting much market attention.

Read the complete article here.

Additional author: Kosisochukwu Ifediba

December 7, 2022 Webinar

1:00 pm – 2:00 pm EST

Register here.

Over the years, there have been significant fluctuations in the asset-backed commercial paper market, however, the market has also demonstrated its resiliency and adaptability. Collateralized commercial paper and commercial paper conduit programs have recently become increasingly significant. Asset-backed commercial paper levels for 2021 increased approximately 9% over the prior year, and are on pace for another significant increase in 2022.

During this session moderated by Mayer Brown partner, Jason Elder, Jerry Marlatt, Partner at Mayer Brown, Stewart Cutler, Head of Money Markets Origination at Barclays Capital, and Ian Rasmussen,
Managing Director and Co-head of Asset Backed Securities Ratings at Fitch Ratings, will discuss the various trends contributing to increased interest in commercial paper financing, as well as regulatory and legal issues, including the following:

  • Commercial paper in a rising interest rate environment marked by heightened volatility
  • Money market reform and related developments
  • Series CP issuers
  • Regulatory capital treatment for financial institutions
  • Repo issues
  • Securities law issues, continuous issuances, and security interest issues

CLE credit is pending.

On November 15, 2022, the Securities and Exchange Commission announced its enforcement results for fiscal year 2022.  Fiscal year 2022 was a significant year for the SEC as it levied over $6.4 billion in penalties and disgorgement – an SEC record. These fines and penalties came from 760 enforcement actions filed during the fiscal year, a 9% increase from the previous year. The SEC ordered that $4.194 billion be paid in civil penalties, also an SEC record and a significant increase from the $1.456 billion in penalties ordered in FY2021. Meanwhile, disgorgement amounts totaled $2.245 billion, a $150 million decrease from FY2021. The dramatic increase in penalties demonstrates that violations are to be met with harsher penalties than in previous years. Gurbir S. Grewal, Director of the Division of Enforcement, remarked that the SEC’s goal is to ensure that “penalties have a deterrent effect and are viewed as more than the cost of doing business.”

The amount of money distributed to harmed investors also significantly increased in FY2022, as the SEC distributed $937 million compared to $521 million the previous fiscal year. However, it is worth noting that the $937 million distributed is still lower than the $1,197 million and $1,073 million distributed in fiscal years 2019 and 2017.

The SEC’s whistleblower program continued to be a priority, as the program received more than 12,300 tips alleging wrongdoing in FY2022, which broke the previous record of 12,210 from the year prior. The SEC issued approximately $229 million to whistleblowers in 103 awards, the second highest dollar amount of awards issued and number of awards issued in the Commission’s history.

For further details, please see the SEC press release and enforcement statistics.

The CB Insights’ recently-published Tech Valuations Report comments on technology company valuations trends and reports on a continued decline during the third quarter of the year.  The report attributes this in part to continued cautiousness on the part of investors given market volatility.

The report indicates that median tech valuations dropped across most investment stages, with the most significant decline in valuation of 27% being for Series D and later stage.  Median deal sizes declined approximately 29% quarter over quarter during the third quarter 2023 across all stages of growth, with median late-stage deal sizes declining by 50% to approximately $50 million.  The charts from the report illustrate the trends.

November 15, 2022 Webinar

2:30 pm – 3:30 pm EST

Register here.

The proxy and annual reporting season may seem a long way off. However, in light of the amount of work and planning that goes into the proxy statement, annual report, and annual meeting of shareholders, this is the ideal time to begin preparations.

During this session, join Mayer Brown partners, Jennifer Carlson, Brian Hirshberg, and counsel Laura Richman, as well as Kilian Moote, Managing Director of ESG Advisory at Georgeson, as they discuss key issues companies should consider while preparing for the upcoming 2023 proxy and annual reporting season. Themes to be discussed include, among others:

  • Compensation Agenda Items
  • Shareholder Proposals
  • Pay Versus Performance
  • Climate Change
  • Human Capital
  • Board Diversity
  • Director Expertise and Governance
  • Universal Proxy
  • Management’s Discussion and Analysis
  • Risk Factors
  • Russia/Ukraine Disclosures
  • EDGAR Submission of Glossy Annual Reports
  • Director and Officer Questionnaires

November 17 -18, 2022 Hybrid Event

Register here

Practising Law Institute (PLI) is hosting its annual Pocket MBA 2022: Finance for Lawyers and Other Professionals program. Pocket MBA is PLI’s hallmark program for attorneys representing clients in the financial industry, but their background training is not primarily in accounting principles and financial concepts. This program is designed to improve understanding of business strategies, accounting fundamentals, and vocabulary used by management, investors, auditors, and bankers.

Mayer Brown partner, Brian Hirshberg, will serve as a program chair and also participate on panels throughout the two-day event.

For more information, please visit the program website.

November 9, 2022 Hybrid Event

2:00 pm –3:00 pm EST

Join Mayer Brown partners, Ryan Liebl and Remmelt Reigersman, for a timely discussion on the most frequently asked questions and hot topics related to equity compensation and tax matters affecting emerging companies and their investors, including the following:

  • Advantages and disadvantages of different types of equity awards for private companies
  • Benefits of “Qualified Small Business Stock” and how to qualify
  • Common deferred compensation pitfalls to avoid
  • Series FF Stock: a hybrid between common stock and preferred stock
  • An explanation of an “Up-C structure” and its benefits

This event will be hosted live, in-person at Silicon Slopes, 2600 Executive Pkwy #140, Lehi, UT 84043, and will also be virtually broadcasted via Zoom.

For more details, please be sure to register.