Innovate Capital Expert Comments

Innovate Capital Law’s founders have been called upon by the media to provide expert commentary for more than 100 news articles about legal, technology and business subjects.

Precision Biosciences prices IPO, looks to raise upwards of $135 million

According to Jim Verdonik, founder of Innovate Capital Law, the two-pronged approach to fundraising could be motivated by several factors, including a desire to extend their runway and protect against unforeseen events through the IPO process, during which he says companies’ burn rates often increase due to anticipation of the coming funding.
The other possibility, said Verdonik, is that the company wanted to raise as much cash as possible with minimal dilution.
“They may have also been contemplating doing this debt deal for the purpose of minimizing the amount of dilution.” he said. “If you can do it partially through debt and partially through equity you can minimize dilution.”
If that was the case, he speculated that the company might have chosen to take advantage of a strong economy rather than wait until the end of the process – which could drag on for months or years – when the markets could be different.
“They could have been afraid that the S-1 process was going to drag on, and interest rates were going to rise, so they didn’t want to wait to raise debt offering until their equity offering was done, so why not lock in their interest rate now,” he said.
Verdonik also speculated that it is advantageous for companies to make their balance books as attractive as possible when pursuing a public offering, suggesting the company could have been interested in the increased funding prior to their IPO in order to raise the value of their equity.
“The debt gives them some cash so they have a better position to bargain for a better price for their equity because they’re not desperate for cash,” he said referring to companies in general, not specifically Precision. “The saying is: ‘the easiest way to raise money is if you don’t need it.’”

Delisting from Nasdaq

Jim Verdonik, founder of Innovate Capital Law, says these notices tend to work against companies, because it comes across as bad news to investors. “When a company announces it might have its trading market lowered, then it’s harder for the company to convince the marketplace it won’t happen,” he said. “It’s kind of hard to raise your market capitalization on your own unless you have good news sitting there that the market is waiting for.”

Should the company fail to meet the threshold, Verdonik said most companies choose to trade on the Capital Market but face several negative ramifications for doing so.

He said many investors – especially institutional investors – use the market and corresponding thresholds to evaluate whether they want to invest in a company and evaluate their risk for doing so.

Shareholder Lawsuits

Jim Verdonik, a Raleigh attorney, says these kinds of lawsuits “are about as common as flies on a dead horse” following acquisition announcements.
“I don’t know the merits of this case, but very few cases actually go to trial,” he says. “The name of the game is extracting settlement payments.”

Computer Games Industry

WRAL Techwire

“Wow!” That was the reaction securities attorney Jim Verdonik had to Eric Games landmark funding announcement last month. The Cary-based company and Fortnite creator raised a staggering $1.25 billion in investment capital. The stunning news “could move the RTP area up several notches in the VC (venture capital) and tech worlds,” according to Verdonik, who routinely works with tech firms and startups from IPO to exit. He was asked by WRAL TechWire to provide insight on what the announcement could possibly mean for North Carolina. Here is what he had to say, “A lot of local people have worked hard to create a great local ecosystem for entrepreneurs,” he says. He continued, “This validates their efforts. First, because it dispels myth that we can’t grow big value in RTP – that will make it easier for other local companies to attract outside capital and attract entrepreneurs from around the country. Second, as Epic starts using that money, it will increase employees and help local vendors. Third, over time, Epic employees will invest in other games, AI and other new companies. Fourth, over time, Epic employees will invest in other local companies. Fifth, games companies attract many kinds of creative talent not just software programmers– artists, writers, etc. – it can create critical mass for creative communities here that go beyond technology. Sixth, RTP has specialized in business to business software – big business to consumer businesses have been scarce – this will increase the marketing, sales and media people who are important to selling to consumers. Seventh, the factors I mentioned above will strengthen local universities.”

Corporate Debt Finance

Triangle Business Journal

Cree has the option to pay the notes in either cash, stock or a combination of the two – a feature attorney Jim Verdonik says, “Minimizes the risk of default by Cree.”
Verdonik, who is not representing Cree, says institutional debt offerings like this generally have lower interest rates and fewer financial covenants than the bank debt the company is seeking to replace.
And they are generally for a longer term. “This may be a sign that Cree believes interest rates will increase in the future,” Verdonik says.

Cryptocurrency Regulation

WRAL Techwire

Jim Verdonik, “People always criticize lawyers for being wishy-washy. I’ll start by making a concrete prediction. I predict that June 2018 will go down in history as the pivotal month for regulatory changes in the Crypto World. It’s the month both national and state regulators stopped wishing the crypto world would just go away and instead decided we need to develop rational rules of the road to let people take advantage of opportunities while protecting the public against fraud and pipe dreams. This is happening simultaneously on many fronts.”

Benji Jones on Crowdfunding Accomplishments

Verdonik, “For the past several years, Benji has led the quest to pass North Carolina Crowdfunding legislation. I am pleased to have worked with her in drafting the law (passed in July 2016) and advising securities administrators on implementing regulations (effective April 2017).”

State Crowdfunding

WRAL Techwire

“LPOs are designed to be a ‘relatively simple’ way for entrepreneurs to raise money, with the caveat that regulators will still be looking over their shoulder.” said attorney Benji Jones.
“You cannot commence your offering, verbally or any other way, until you have completed your filing requirements and received approval from the N.C. Secretary of State’s office,” Jones said. “You also have to file your advertising materials.”

Crowdfunding

Reflector.com

Benji Jones, an attorney with a Raleigh law firm, said “Crowdfunding for businesses, called investment crowdfunding, is similar to traditional crowdfunding, called donation- or reward-based crowdfunding, but there are key differences. It’s not different from the successful Kickstarter campaigns. It’s just a different path and a different way of raising the money,” Jones said, referring to the popular crowdfunding website Kickstarter.com.

VC Industry

WRAL Techwire

Veteran lawyer: Venture capital ‘becoming increasingly irrelevant.’
“I see three factors that are important to keep in mind when interpreting the numbers about levels of Venture Capital investments,” Verdonik explained. “1) A small data pool;
2) Changes the mix of businesses entrepreneurs are creating; 3) Alternative sources of capital that compete with traditional Venture Capital.”