The third quarter of 2019 saw a slight decrease in venture private capital funding levels according to PwC and CB Insights’ recently published MoneyTree report. Approximately $25.9 billion was raised across 1,304 deals, bringing total capital raised in 2019 to $83 billion.

Staying private longer. Companies have taken advantage of raising large amounts of private capital in recent years, increasing their valuations to unicorn status before going public or completing other types of exits.  In the third quarter of 2019, late-stage or mezzanine financings reached a median deal size of $100 million according to the report. Mega-rounds, which raise over $100 million in proceeds, have slightly decreased this past quarter to 55 from last quarter’s record of 67. In 2019, to date, $38.7 billion has been raised through venture mega-rounds.

Larger and later-stage financings are being undertaken by companies in a number of different sectors.  For example, late-stage deals contributed substantially to the almost $1.1 billion raised in 47 venture deals in the third quarter of 2019 by companies in the internet of things (“IoT”) sector. Startups in the fintech sector raised $3.8 billion, down from $5.2 billion in Q2. The largest rounds raised by these fintech companies were also later-stage mega-rounds.

The list of unicorn companies, valued at over $1 billion, has now reached 180 with an aggregate valuation of $621.2 billion, a record for venture-backed companies. There were 17 new unicorn “births” in the third quarter.

Exits. There were 22 IPOs completed by venture-backed companies in the third quarter of 2019, according to the report, bringing totals to 70 IPOs completed in 2019. M&A activity remained consistent with 163 M&A exits by venture-backed companies in the third quarter.  In comparing IPO exits to M&A exits from the past quarter, IPO exits take longer than M&A exits by almost one year with the median time from first funding to IPO being 7.5 years and 6.6 years from first funding to M&A exit.

On September 26, 2019, the US Securities and Exchange Commission extended the ability to test the waters to all issuers by adopting the highly anticipated new Rule 163B under the Securities Act of 1933 (the Securities Act). The new rule allows any issuer, or any person acting on the issuer’s behalf, to engage in test the waters communications with potential investors that are reasonably believed to be institutional accredited investors (IAIs) and qualified institutional buyers (QIBs), either prior to or following the date of filing of a registration statement relating to the offering, without violating the Securities Act’s “gun jumping” rules. Prior to Rule 163B, testing the waters was limited to emerging growth companies (EGCs) only.

Read our Legal Update.

One of the Securities and Exchange Commission’s priorities under Chair Clayton’s leadership has been protection of retail investors, including through rigorous enforcement of microcap fraud.  Consistent with that focus, yesterday, the Commission released proposed amendments to Securities Exchange Act Rule 15c2-11.  This rule requires that certain issuer information be made available to and be reviewed by broker-dealers before broker-dealers publish quotes for the issuer’s securities on the OTC market.  The proposed changes would update the rule and impose stricter requirements by removing certain exemptions that are currently available.  The proposed rule would require that broker-dealers receive and review issuer information that is current and that is publicly available.  A broker-dealer would not be able to continue to provide quotes on a security (such as under the current “piggyback exemption”) if the issuer information is not current and not publicly available.  Under the proposed rule, broker-dealers would not be permitted to continuously quote prices for the securities of shell companies.  New exceptions would be made available under the proposed rule to broker-dealers in instances where there is current public information available about an issuer and there is less risk of potential market manipulation.  The Commission also solicits comments on “information repositories.”

Chair Clayton’s public statements are available here.

The fact sheet is available here.

The proposed rule and concept release is available here.

On September 17, 2019, the Securities and Exchange Commission (SEC) proposed rules to update the statistical disclosures that bank and savings and loan registrants provide to investors. The proposed rules would rescind Industry Guide 3, Statistical Disclosure by Bank Holding Companies (Guide 3), codify certain Guide 3 disclosures into a new Subpart 1400 of Regulation S-K, eliminate other Guide 3 disclosures that overlap with other SEC disclosure requirements, U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), and add certain credit ratio disclosure requirements.

For more, read our Legal Update.


On September 25, 2019, the Securities and Exchange Commission will hold an open meeting to consider a number of topics.  The first item on the meeting agenda relates to consideration of whether to propose amendments to Rule 15c2-11 of the Securities Exchange Act relating to the publication of quotes for securities in a medium other than a national securities exchange.  This has been a topic of interest in connection with private secondary markets and trading in microcap and small cap stocks.  The second item relates to the consideration of a final rule allowing for testing-the-waters communications in a broader range of offerings.  The other two items on the agenda relate to the regulation of exchange-traded funds.

This past week, the House Financial Services Committee considered and passed a few bills that would, if passed by the House, result in changes to the securities laws. These include:

The Investor Protection and Capital Markets Fairness Act (H.R.4344), a bill by Representative Ben McAdams (D-UT), would substantially strengthen the authority of the Securities and Exchange Commission (SEC) to recover the wrongful gains of securities law violators for investors. The bill passed the Committee by a bipartisan vote of 49-5. This would overturn the recent Supreme Court decision in Kokesh v. SEC, which held that disgorgement is a penalty and is therefore subject to a five-year statute of limitations. As a result of that case, the SEC may only bring cases for disgorgement within five years of the date of the violation, regardless of whether the SEC was able to detect it within five years of the violation.

The Greater Accountability in Pay Act (H.R. 4242), a bill by Representative Nydia Velázquez (D-NY), would require public companies to disclose the pay raise percentage of their executives and of their median-pay employees over the past year and compare these percentages to the rate of inflation. The bill passed the Committee by a vote of 32-21.

The 8-K Trading Gap Act (H.R. 4335), a bill by Representative Carolyn Maloney (D-NY), Chair of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, would fix a supposed loophole to prevent corporate insiders from profiting based on nonpublic information. The bill passed the Committee by a unanimous, bipartisan vote of 52-0. The bill would address the 4-day “gap” that may exist between the occurrence of a material event and its disclosure on a Form 8-K and the possibility that insiders may trade on material nonpublic information.

The ESG Disclosure Simplification Act (H.R. 4329), a bill by Representative Juan Vargas (D-CA), would require public companies to disclose information on their environmental, social and governance (ESG) practices. The bill passed the Committee by a vote of 31-22. The bill would require the SEC to engage in rulemaking to identify ESG information that would be required to be disclosed by public companies in their proxy statements.

The Corporate Management Accountability Act (H.R. 4320), a bill by Representative Katie Porter (D-CA), would require public companies to disclose their policies on whether senior executives or shareholders bear the costs of paying the company’s fines and penalties, in order to help prevent the cost of fines being passed off to investors. The bill passed the Committee by a vote of 31-22.

The House of Representatives passed H.R. 3625, the PCAOB Whistleblower Protection Act of 2019, a bill that would protect individuals who blow the whistle on violations and bad actors by establishing a whistleblower program at the Public Company Accounting Oversight Board (PCAOB) similar to the program at the SEC. This bill was introduced by Rep. Sylvia Garcia (D-TX). It was passed by a voice vote.

On September 17, 2019, the Securities and Exchange Commission proposed rules to update the statistical disclosures that banks and loan registrants provide to investors, and eliminate disclosures that overlap with SEC rules, U.S. GAAP or IFRS.  The proposed rules would replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure in a new subpart of Regulation S-K.  SEC Chairman Jay Clayton noted that Industry Guide 3 has not been substantively updated for more than 30 years.

The SEC’s proposed rules, which would apply to bank holding companies, banks, savings and loan holding companies, and savings and loan associations, would update disclosures that investors receive, codify certain Guide 3 disclosure and eliminate other Guide 3 disclosure.  The proposed rules would require disclosure about the following:

  • Distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
  • Weighted average yield of investments in debt securities by maturity;
  • Maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
  • An allocation of the allowance for credit losses and certain credit ratios; and
  • Information about bank deposits including amounts that are uninsured.

The proposal will have a 60-day public comment period following its publication in the Federal Register.

Here are links to the SEC’s Fact Sheet and the proposing release.

A Legal Update will follow.

CB Insights recently published its Q2 2019 Global Fintech Report. Although there were 838 deals worth $15.1 billion completed during the first half of 2019, this represents a significant decline from 2018 levels, both in number and deal value.

In Q2 2019, the number of VC-backed fintech deals fell to the lowest number since Q4 2016. However, mega-rounds, or rounds in which $100 million or more in proceeds were raised, served to boost the percentage of late-stage fintech deals completed during the first half of 2019. There were 25 mega-rounds completed, raising a total of $5 billion during Q2 2019. In the US, there were 14 mega-rounds completed in the second quarter of 2019, worth $3.3 billion, bringing funding to a new quarterly high of $5.1 billion.

Globally, as of the date of the report, there are now 48 fintech unicorns with a total aggregate value of $187 billion, with 28 unicorns based in the United States. There were seven new fintech unicorn “births” in Q2 2019 and two in Q3 2019, including Markets,, Carta, Lemonade,, Value, and Liquid in Q2 2019, and Hippo and Judo in Q3 2019. U.S. fintech VC-based equity funding in Q2 2019 amounted to $5.1 billion across 143 deals. Although the number of deals has declined from 2018, the funding level may top 2018 levels. During the first half of 2019, the largest deals included funding transactions for SoFi, Affirm, Lemonade and Carta.

Within the fintech sector, the report also covered various sub-sectors worth mentioning. Digital banking companies have raised over $2.5 billion in funding year-to-date. Since the emergence of these mobile and digital-based banking apps, these companies have amassed over 230 million user accounts. Capital markets-tech companies had a number of mega rounds, raising almost $2 billion in funding to date. Among these companies focused on providing services to financial institutions, we find startups poised to disrupt traditional IPOs, such as a new, seed-stage, SEC-approved stock exchange, and a capitalization table (or “cap table”) management startup, which has leveraged the trend of companies staying private longer to gain traction. Alternative and direct lending companies have raised $3.2 billion over 90 deals in the second half of 2019. Finally, insurance tech (or “insurtech”) companies raised almost $5 billion in funding over 108 deals in the first half of 2019.

SEC Chair Clayton has noted in many public remarks that the growth of the private capital markets have outpaced the U.S. public markets.  Many of the most promising companies now choose to defer their IPOs and remain private, raising capital in successive exempt offerings.  While the JOBS Act brought about a number of changes to, and additions to, the exempt offering framework, that may only have increased complexity.  Earlier this year, the SEC issued a Concept Release on Harmonization of Securities Offering Exemptions that raises a number of fundamental questions for market participants.  Do we have too many exempt offering choices?  Is harmonization required?  How will retail investors participate in the growing private markets?  During this session, Anna T. Pinedo and Michael Hermsen will discuss:

  • Traditional private placements conducted under Section 4(a)(2) and Rule 506(b),
  • The evolution of general solicitation and Rule 506(c),
  • The motivations for using one of these approaches over another,
  • Integration of offerings in close proximity to one another and the changes in integration analyses over the years,
  • Choosing among a Regulation A, a crowdfunded, and a Rule 506(c) offering,
  • Investor qualifications, sophistication and disclosure, and
  • Resale exemptions.

For more information, visit the event’s website.