Author: TSA Press

For the past 10 years or so, founders of early-stage startups have been increasingly turning to convertible notes and convertible equity instruments to structure investment rounds, particularly for their first capital raise. While some in the angel investment community have argued that it would be best if founders did fewer convertible note rounds and more equity deals, it’s important to consider why the convertible note structure has made such a big splash in early-stage financing world in the first place. What are the primary benefits for founders and their investors to opt for a convertible note offering over a stock offering? In future posts, we will consider the key deal terms to consider for your convertible note offering but first let’s look at the key benefits of the convertible note structure to determine if it is right for your company.   

If you’re a founder, you might be thinking “what’s wrong with simply selling, for example, 10% of my company to an investor in exchange for $100,000 to get us off the ground?” This raises the first issue that convertible notes are intended to solve, and that is the problem of valuation. Let’s suppose your company is pre-revenue, still working on the beta version of its product, or perhaps looking for that first enterprise customer. Does it make sense to slap a $1,000,000 post-money valuation on the company at this stage? Perhaps, but what if you end up getting a lot of traction with that $100,000 and raise a Series A round at a $10 million valuation 2 years later? Your first investor is going to be ecstatic, but you’re going to have some serious seller’s remorse for giving away such a large chunk of your company for what you now realize was an extremely low valuation.

The primary advantage of a convertible note is that it allows founders and investors to postpone the valuation discussion to another day. Convertible notes convert into equity based on the valuation of the company’s next equity financing round. So, using our example above, instead of the investor getting 10% of the company in exchange for the $100,000, the investor would convert into the round that valued the company at $10 million at, for example, a 20% discount. From the founder’s perspective, the company was able to use the $100,000 to gain the proper traction to justify a higher valuation and avoided the dilution from selling equity at a $1 million valuation. Meanwhile, the convertible note investor is satisfied because he is being compensated for taking the extra risk of coming in early with a discounted purchase price in the new round. While other investors are willing to pay $1.00/share for the company’s stock, the investor is being treated as purchasing that same stock for $.80/share. 

The second reason traditionally used to justify convertible notes is simplicity. Returning to our example where the founders want to sell a 10% equity interest in their company, what are the terms of this initial $100,000 investment? Is the company selling common shares or preferred shares? If the company sells, will the sale proceeds first go to return the investor’s money or will the founders and the investor split all proceeds 90/10? What happens if the company raises capital on better terms in the future? Will the investor receive those better terms or have an opportunity to participate in the new offering to avoid dilution?

Issuing a convertible note in lieu of company stock once again allows the founders and the investor to postpone these decisions until the company’s next equity financing round. The convertible note investor will simply convert into the class of shares offered in the next equity financing and generally receive those same rights (with certain exceptions). Given this simplicity, a convertible note offering is generally cheaper than putting together an equity financing round. With that said, however, it is important to remember that both types of offerings involve the issuance of a security, and you will need to consult an attorney in both cases to ensure compliance with federal and state securities laws. In addition, the angel financing community has matured to the point where there are generally agreed upon terms for first-money convertible note offerings and first-money equity offerings, which reduces the negotiating complexity for both types. Therefore, while it is generally true that convertible note offerings are more simple to put together, the costs are not always that distinct from equity offerings, and outside factors – like who your investors are and the amount of negotiating leverage they have – will play a significant role in the overall complexity of the project.  

There’s no doubt that convertible notes have been a nice addition to the early-stage financing landscape, particularly for founders since it allows them to raise capital efficiently and without granting the rights typically reserved for preferred stock investors. Although convertible notes postpone discussions regarding company valuation and preferred stockholder rights, these decisions must be made at some point. Therefore, convertible notes are best viewed as a bridge to get the company in the best possible position for a larger round of equity financing.

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This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Case Status, a Birmingham, Ala.-based client relationship management and marketing platform for law firms, is announcing today that it has received Series Seed II investment funding of $1.5 million from Atlanta-based venture investment firm BIP Capital.

The company says that the funds will be used to support its continued growth, including the hiring of additional personnel and the development of new feature sets for specific practice areas.

Case Status allows lawyers to provide clients with real-time visibility into the status of their matters from their mobile devices. The platform also helps lawyers grow their firms by making it easy to obtain reviews and referrals from current clients.

Lauren Sturdivant

This news comes almost exactly one year after I last wrote about Case Status, when it had just received $750,000 in funding from the Alabama Futures Fund.

Case Status was cofounded in 2017 by Lauren Sturdivant, a former personal injury attorney, and Andy Seavers, an entrepreneur.

While practicing, Sturdivant saw firsthand the difficulty of keeping her clients up to date. When she was unable to find a product that did that, she decided to leave her firm and build one herself.

“It’s fascinating that in a world where you can track everything — from Amazon packages to the status of your pizza order — there was no way for clients to track the status of their case, one of the most important things going in their lives,” said Sturdivant, now the company’s CEO.

Last year, Case Status shifted its pricing model, going from per-user subscription pricing to per-case pricing. Firms pay a one-time, flat fee per case that they can pass on to clients.

Case Status integrates with AbacusLaw, CasePeer, Clio, and Filevine.

BIP Capital invests in both early-stage and growth companies. Its areas of focus include enterprise SaaS, healthcare IT, digital media, development tools, and marketing technology.

“We’re excited to partner with Case Status to resolve a common but critical pain point between lawyers and their clients — a dearth in regular communications,” Mark Buffington, CEO of BIP, said in a statement.

‘Case Status,’ App that Automates Client Communications, Receives Venture Funding

Step one in any litigation is actually knowing who you’re appearing in front of. Well, not really. Step one is probably advising a potential client of his or her rights and executing a retainer agreement, but knowing who you’re appearing in front of is high up on the list.

In the Southern District of Texas, attorneys for plaintiffs Marvin and Shirley Williams in their lawsuit against Avon failed to clear this important hurdle, addressing a draft motion to Judge Keith Ellison even though the case will be heard by Judge Andrew Edison. It’s an understandable mistake, except they spell and pronounce their names differently.

Rather than flying off the handle at the error as some more egocentric trial court judges have been known to do, Judge Edison responded with a gentle but firm benchslap with a heavy dose of self-deprecation:

Plaintiff’s counsel prepared this draft order and obviously confused me with U.S. District Court Judge Keith Ellison. I appreciate the compliment, but want to make sure the parties understand that Judge Ellison and I are two completely different people. Judge Ellison clerked at the U.S. Supreme Court; I once visited the Supreme Court on a tour. Judge Ellison was a Rhodes Scholar; my mom thinks I should have been a Rhodes Scholar. Judge Ellison graduated summa cum laude and Phi Beta Kappa from Harvard; I don’t know what those big Latin words mean.

Along the way to granting the motion, Judge Edison even offered some free writing advice about the importance of getting to the point in writing with an extreme markup of the draft.

A tip of the hat to Judge Edison for showing us all that just because judges have an important job, it doesn’t mean they can’t have a sense of humor about themselves.

(Check out the order on the next page.)

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Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

Well, don’t we all feel better? Are you not reassured by the President’s little fireside chat last night?

No? HUH!

Funny enough, the stock market is also a bit dyspeptic this morning. After President Trump’s eleven-minute, scripted address to the nation, his aides spent the rest of the evening cleaning up a series of catastrophic factual errors that exacerbated the panic over COVID-19. You can watch the whole thing here, if you’re feeling masochistic.

Naturally Trump opened by patting himself on the back for “the most aggressive and comprehensive effort to confront a foreign virus in modern history” and then crapping on China and the E.U., claiming that “a large number of new clusters in the United States were seeded by travelers from Europe.” In normal times, we might not refer to our allies, who are, lest we forget, suffering and dying, as vectors of contagion. But in normal times, we’d probably give them a heads up before announcing a travel ban on national television.

These are not normal times.

To keep new cases from entering our shores, we will be suspending all travel from Europe to the United States for the next 30 days. The new rules will go into effect Friday at midnight. These restrictions will be adjusted subject to conditions on the ground. There will be exemptions for Americans who have undergone appropriate screenings.

Naturally, this set off a panic in Europe, where Americans and lawful permanent residents abroad raced to pay whatever it cost to get on the last plane out of Saigon De Gaulle, since the president very clearly said Americans weren’t getting back in without “appropriate screenings,” whatever that means.

Except, whoopsie!

It’s cool, you guys. The airlines will get right on those refunds … NEVER.

Trump continued:

These prohibitions will not only apply to the tremendous amount of trade and cargo, but various other things as we get approval. Anything coming from Europe to the United States is what we are discussing. These restrictions will also not apply to the United Kingdom.

Now, to the untrained observer, that might sound like Trump is cutting off imports from our biggest trading partner, effective immediately. But when he said “anything coming from Europe to the United States,” what Trump meant was only people.

Clearly those losers at the FTSE and the DAX, both of which dropped about 10 percent yesterday, really need to clean their ears! Did they not hear the president when he decreed that “This is not a financial crisis, this is just a temporary moment of time that we will overcome together as a nation and as a world?” Silly Europe!

Third time’s a charm?

Earlier this week, I met with the leaders of health insurance industry who have agreed to waive all copayments for coronavirus treatments, extend insurance coverage to these treatments, and to prevent surprise medical billing.

Uhhhh, nope.

“The leaders at the White House for Tuesday’s industry meeting agreed to waive copays for testing not for treatment. Treatment is being considered a covered benefit in accordance with a person’s plan,” Kristine Grow, spokesperson for America’s Health Insurance Plans told CNBC’s Eamon Javers.

Meanwhile, we still have nowhere near enough tests to diagnose how far the virus has spread, and Mitch McConnell is refusing to pass Nancy Pelosi’s plan because “it proposes new bureaucracy that would only delay assistance.” Which seems to be code for, you guessed it, abortion.

Anyway, this is all fine.

Okaaaaaaaaaaaaay?

Remarks by President Trump in Address to the Nation [WH.gov, March 12, 2020]

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Elizabeth Dye lives in Baltimore where she writes about law and politics.

Earlier this week, Quinn Emanuel shuttered its New York office after one of the firm’s partners tested positive for coronavirus, enacting a work-from-home policy for all of its attorneys and staff. A day later, Faegre Drinker closed its offices worldwide and enacted a similar policy, if only for a short time, due to a coronavirus scare. All the while, attorneys and staff at other Biglaw firms were left wondering why their firms hadn’t taken any action yet when the technology is available to let them to do their jobs from safe spaces.

As luck would have it, another Biglaw firm has finally decided to allow its lawyers and staff to work from home — and the way they’re doing it is pretty interesting.

Yesterday, Weil Gotshal sent out a memo to let everyone know that the firm’s coronavirus policy had been updated to require mandatory work-from-home sessions on alternating weeks. To accomplish this, the firm will be split into two separate groups, with smaller groups venturing into the office every other week. The firm’s goal here is to minimize the risks of anyone contracting coronavirus through this social distancing program. Weil’s policy will be in effect until further notice.

Here’s an excerpt from the memo, which is available in full on the next page:

Work from Home:  Group A & Group B

Effective, Monday, March 16th, the Firm will assign all attorneys and administrative personnel into two groups:  Group A and Group B.  These groups will alternate working from home on a weekly basis (i.e., Group A will work from home the week of March 16th, Group B will work from home the week of March 23rd, etc.).  This is mandatory and may be adjusted as required outside the United States.  By Friday, March 13th, assigning partners and/or practice group leaders (for attorneys) and managers/supervisors (for administrative personnel) will inform members of their teams of their respective group assignment.

Any administrative staff member who believes that they cannot perform some or all of their regular job functions from home should consult with their immediate supervisor, who will be managing work flow and may be able to provide alternative projects.

Is Weil simply too big to have all of its personnel work from home at the same time? The firm has more than 1,100 lawyers and an untold number of staff. While this isn’t the perfect solution to the coronavirus exposure problem, at least Weil is doing something about it by offering all of its employees this option.

Congratulations to Weil Gotshal on being one of the first Biglaw firms to offer a way for its employees to continue working while staying safe during a pandemic.

What is your firm doing to protect lawyers and staff from coronavirus? Please text us (646-820-8477) or email us (subject line: “Coronavirus Response”). Stay safe.

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Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

Thanks to the global pandemic that is the coronavirus, it’s beginning to look a lot like 2008. The stock market plummeted for the second time this week, both times triggering circuit breakers to suspend all trading. Law schools have canceled in-person classes and have shifted to online coursework, some for the rest of the semester. Some law firms have shuttered offices, with others encouraging attorneys to work from home until further notice.

All of this upheaval got us to wondering what would happen to Biglaw summer associates. Of course, as noted by the American Lawyer, Biglaw firms have already interviewed law students and selected their incoming summer classes.

“We did our hiring for the summer [and] fall months and months ago,” said David Greenwald, managing partner at Fried Frank Harris Shriver & Jacobson. “That’s locked and loaded.”

Same for Washington, D.C.-based tax boutique Caplin & Drysdale, although the timing was closer.

“[On campus interviews] just finished, and the summer offers are out,” said firm administrator John Riggleman. “Three weeks back, it probably would have had a greater impact.”

But if the coronavirus sticks around, could we be facing a situation where upcoming summer programs are possibly postponed or canceled outright?

“On summer programs, while there may be some cancellations, I would be surprised to see mass cancellations due solely to COVID-19 concerns,” said Zeughauser Group consultant Kent Zimmermann. “The bigger issue in my mind is what happens to the macroeconomy. If there is a sustained macroeconomic downturn and it depresses demand for legal services, similar to what happened after Lehman Brothers, firms may cut back on their summer programs and other expenses, similar to what happened as a result of the financial crisis and its impact on the broader economy and the negative impact of that on demand for legal services.”

While some think they’re “going to get through this just fine,” law students who thought their careers were mapped out are growing increasingly worried. To that end, a Reddit post that has since been deleted detailed $24,000 payouts for law students from law firm that allegedly cut its summer program due to the coronavirus outbreak.

While we genuinely hope that things will work out, we are but a few weeks into what could be a very long journey when it comes to containment of the coronavirus and a potential recession that could drive the legal market into chaos.

Is your firm planning to hold its summer associate program as planned, despite coronavirus concerns? Please text us (646-820-8477) or email us (subject line: “Coronavirus Summer Associate Program”) and let us know. Stay safe.

How Coronavirus and a Bear Market Could Upend Law Firm Hiring [American Lawyer]

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Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

Just in time for Women’s History Month and International Women’s Day, Lawline’s fourth annual installment of our Top Women Faculty List puts a spotlight on some of the most amazing legal minds we have the pleasure of working with. These attorneys are at the top of the game in their practices – which range from health law to immigration to IP, and everything in between – and also masters of pedagogy. Online CLE can be a tough format to teach, but these superstars are making an impact on attorneys across the country. Our top women faculty are on the front lines of changes in technology, immigration, and more, providing practical, actionable advice that attorneys can implement immediately to grow in their careers. The women on this list taught some of the most-watched, highest rated programs Lawline produced in 2019 – and we are incredibly proud that we provided the platform for them to shine.

Without further ado, it is our pleasure to introduce our Top Women Faculty of 2019:

Michael Avenatti is supposed to have a pre-sentencing interview soon, but his attorney Scott Srebnick asked the judge yesterday to postpone that by at least 30 days because he thinks he could get COVID-19 at the jail. As both a lawyer and a blogger, let me just tip my hat because that’s a newsjacking truly worthy of induction into the clickbait Hall of Fame.

The request, made by letter to Judge Paul Gardephe, raises a number of concerns, but given the current media frenzy, the section on the coronavirus outbreak got the most attention:

Meanwhile, across the country, public officials are declaring states of emergency as a result of the spread of the Coronavirus. Flights are being canceled. Schools are closing. New protocols are being established for entry into federal courthouses. Health officials are uncertain of the actual risks, and, by all accounts, a prison facility poses among the highest risks of spread of infection.

Except health officials are pretty certain about the actual risks. Why do lawyers think overhyping this illness is necessary? It’s already pretty bad with the risks we understand, folks!

As one might suspect, this motion was denied immediately because, frankly, there’s nothing unique about the concerns he’s raising and taken to its logical conclusion, the letter posits that the criminal justice system should shut down for several months while prisoners languish in a diseased cesspool. But hopefully invoking COVID-19 because won’t overshadow the other complaints Srebnick raises in the letter, because MCC is a horrible, unsanitary mess:

The MCC lockdown led to even more cramped and unsanitary conditions at the jail. Inmates (including Mr. Avenatti) were permitted to shower only twice in 12 days. Many inmates lacked soap or hot water to wash their hands. Alcohol-based sanitizers are banned for use by inmates. Hot meals are being denied. Mr. Avenatti’s cell was infested with rats. The jail reeks of urine.

This is a breeding ground for disease, but you don’t need to jump to COVID-19 to make this point. You can catch airborne syphilis down there. It’s not a reason why lawyers shouldn’t be going to the prison at this time — it’s a reason why prisoners shouldn’t be kept in these conditions ever.

At least MCC isn’t using inmates as slave labor to make hand sanitizer… unlike some people.

Who knows if this was intentional on Srebnick’s part or not, but if it was, that’s what good newsjacking is. MCC’s unsanitary conditions aren’t moving the media needle as much as they should. If tying one of the most well-known lawyers on the planet — a potential repeat Lawyer of the Year — to COVID-19 gets more outlets to take seriously how appalling the conditions are there, then it’s worth it.

(Check out the letter/order on the next page.)

Michael Avenatti’s lawyer afraid to visit him in jail over coronavirus [NY Post]

Earlier: Authorities Have Thrown Michael Avenatti In The Hole — Attorney Asks To Move Him To Gen Pop
Who Was The 2019 Lawyer Of The Year?

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Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

Have you ever had the thought that gun rights advocates had an unhealthy devotion to their cause? Or that free speech proponents are more than a little absolutist in their assessment of the issue? Maybe one or both of these constitutional diehards struck you as having a religious-like ferocity when engaging on the subject? Well, you’re not the only one.

In the latest episode of The Jabot podcast, I talk with Mary Anne Franks, a professor at the University of Miami Law School, about her new book, The Cult of the Constitution: Our Deadly Devotion to Guns and Free Speech. Together, we explore her thoughts on constitutional fundamentalism and the negative impacts that devotion can have.

The Jabot podcast is an offshoot of the Above the Law brand focused on the challenges women, people of color, LGBTQIA, and other diverse populations face in the legal industry. Our name comes from none other than the Notorious Ruth Bader Ginsburg and the jabot (decorative collar) she wears when delivering dissents from the bench. It’s a reminder that even when we aren’t winning, we’re still a powerful force to be reckoned with.

Happy listening!

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Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).