Richard C. Bruder writes: The facts are simple, though the answer (if there is one) may be complex:

I represent a NY investor, negotiating a Series AA round in a company located in California (Company is incorporated in Delaware, however).

We'd like a non-compete that binds the Founders (who live and work in Calif), but NCs are not enforceable in Cal.

What do venture investors in California companies do to protect themselves against walking Founders?

Thanks, as always, for your great insights.

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Richard C. Bruder writes: Client is the GP of an committed capital Angel Fund. They are rounding third base on their fundraising, and a large family office is willing to invest PROVIDED that "a few things are changed" in the deal.

To what extent can changes be agreed to with this Family Office only (via side letter) -- as opposed to having to amend the LP Agreement for all.

Some changes obviously can be made via side letter alone (e.g., we'd like notices sent to us AND to our lawyer). Other changes obviously could not be made for this investor alone (e.g., we'd like TWO Units for the price of one).

But, what are the rules for the not so obvious changes between these extremes?

Thanks, as always, for your insight, help and wisdom.

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Mattia Colonnelli writes: I am advising an Italian start-up company (big data). I am currently negotiating a first round investment with a venture capital fund. The main and more valuable asset of the start-up is an algorithm. According to certain high level researches conducted, it seems that an algorithm is patentable in US, if certain conditions are met (while in Italy, and Europe at large, the scenario is different). The client is considering to patent such algorithm in US before going forward with the first round. Is an algorithm patentable in US? Under which conditions? What are the associated costs? Any advise will be more than welcome.

Many thanks.

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Richard C. Bruder writes: Company closed a funding round a while back which included issuing warrants to investors. The Company has decided to extend the exercise window on the options and the Board has passed a resolution authorizing the Company to extend the exercise window by an additional period of time.

In order to implement this, should we amend the existing warrants (which, on their face, have an exercise period that is either soon to expire or already expired)? Or, is it sufficient for an investor-warrantholder to simply have possession of the Company Board Resolution in which the Company authorized the extension of the warrant exercise window?

I have a strong feeling as to the correct answer, but I am asking so that you folks can help solve a debate between me and counsel on the other side.

Thanks, as always, for your collective wisdom!

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Stephen M. Goodman writes: A newly-formed angel forum is considering asking its presenting companies for a percentage fee if a presenting company successfully attracts investment from members of the forum as a result of its presentation. I have advised them that traditionally this was supportable on the theory that the forums (fora?) are acting as finders but not brokers, since the specifics of each investment are hammered out by the investors and the issuer directly. I am aware that the SEC has consistently rejected this view, saying that percentage-based compensation in connection with a securities transaction is virtually dispositive of the question of whether someone is acting as a broker. However, the courts appear to be more willing to allow for the possibility that someone claiming to be a finder may not, in fact, be in the business of "effecting" transactions in securities. Therefore, there has been at least judicial support for true finders (which these forums may well be) to take percentage-based compensation without having to register as brokers.

However, Section 201(c) of the JOBS Act seems to codify the SEC's position in this matter as regards Rule 506 private placements, which are presumably the result of most presentations to angel groups. That Section says that no person is subject to registration as a broker or dealer solely because such person "maintains a platform or mechanism that permits the offer, sale, purchase, or negotiation of or with respect to securities, or permits general solicitations, general advertisements or similar or related activities by issuers of such securities, whether online, in person, or through any other means. . ." However, this exemption is available only if "such person and each person associated with that person receives no compensation in connection with the purchase or sale of such security . . ."

Since I feel that angel forums fit within the "platform or mechanism" concept, is it overly conservative to take the view that the SEC may point to the statutory prohibition as evidence of Congress' intent to override the judicial view regarding the ability of true finders to accept percentage-based compensation? Or is it simply that if an angel forum fits the "platform" definition and takes the compensation, the statutory exemption from registration is simply unavailable, and the forum can continue to rely on the current judicial view? Or is it incorrect to believe that angel forums are "platforms" covered by the statute? Any insight would be greatly appreciated.

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