2013: The Year of Corporate Venture Capital

By Anna Maria Galinska, LL.M. Candidate 2014 | January 2, 2014 at 10:55 am

Corporate venture capital on the rise

Looking back, 2013 has been the year of corporate venture capital (CVC). Corporate venture capital is a special form of investment of corporate funds directly in external target start-up companies. Corporations decide to pursue CVC projects not only for financial reasons, but also to create a ‘window on technology’, which enables them to early spot and follow innovations.

Corporations have realized that pumping millions of dollars into R&D projects might not be the best way to keep pace in their industries. The fall of tech giants like Kodak and Nokia, who did not sense the winds of innovation, are evidence of the failure of traditional R&D investment. Nowadays, there is another way for corporations to innovate and generate profits at the same time – by becoming active participants in the startup game.

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Recap: Is Venture Finance in China Possible?

By Nahal Bahri, JD Candidate 2015 | October 8, 2013 at 06:59 am

On October 2, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a lunchtime talk on venture finance in China by Arman Zand, Senior Vice President of SPD Silicon Valley Bank in Shanghai, China. Zand, a Haas MBA (class of ‘09), spent the last four years in Shanghai establishing Silicon Valley Bank’s (SVB) joint venture with Shanghai Pudong Development Bank (SPD). Unlike other banks, SVB is a financial institution designed to serve entrepreneurial and early stage tech companies.

In his presentation titled “Is Venture Finance in China Possible? The View from Silicon Valley,” Zand spoke about recent developments in China’s economy, some challenges he faced in developing China’s first venture capital bank and lessons he learned along the way.

Before delving into the main issues with developing a venture capital bank in Shanghai, Zand gave a brief explanation of recent developments in China’s economy. He explained that China’s economic development is rapidly moving forward with the hopes of transitioning from a labor economy to an innovation economy that embraces SMEs, or small and medium-sized enterprises.

Subsequently, Zand explained some of the challenges he faced while in China, including working with Chinese banks that are primarily mortgage lenders. The majority of all bank loans in China require real assets to serve as collateral; however, entrepreneurial companies only have IP collateral: trademarks, patents, software code and the like. The lack of real estate makes venture finance “extremely challenging.”

Nevertheless, a recent development in which Shanghai announced a new free trade zone (FTZ) could create a superior environment for venture finance. (more…)

Delaware Court of Chancery Issues Post-Trial Decision in Trados

By David J. Berger, Steven Guggenheim, Elizabeth Saunders, and Herb Fockler | August 22, 2013 at 06:05 am

[Editor’s Note: The following update is authored by Wilson Sonsini Goodrich & Rosati]

On August 16, 2013, the Delaware Court of Chancery issued a much-anticipated post-trial decision in In Re Trados Incorporated Shareholder Litigation, holding that the sale of Trados to SDL was entirely fair to the Trados common stockholders and that the Trados directors had not breached their fiduciary duties in approving the transaction.¹ The case involved a common fact pattern: the sale of a venture-backed company where (1) the holders of preferred stock, with designees on the board, receive all of the proceeds but less than their full liquidation preference, (2) the common stockholders receive nothing, and (3) members of management receive payments under a management incentive plan.

Background

In 2005, the board of directors of Trados, a translation software company, approved the sale of Trados to SDL plc through a merger. In the four years leading up to the transaction, Trados had received multiple rounds of venture capital financing and issued several series of preferred stock. Shortly before the sale, Trados was sharply in need of capital, due to significant downturns in its business. Its venture capital investors were unwilling to inject more cash into the business, so Trados obtained an infusion of venture debt, adopted a management incentive plan (MIP) so that it could recruit and retain new management, and hired a new management team, including a new CEO and CFO. Trados also hired an investment banker to explore strategic alternatives and shopped the company to several possible buyers. Trados’ new management was able, at least in the short term, to “clean up” the business, beating budget estimates and increasing revenue, while also exploring strategic alternatives for the longer term. Trados was ultimately able to negotiate a sale to SDL on terms deemed favorable by the Trados board. In the sale to SDL, Trados received $60 million. The first 13 percent of the merger consideration, or $7.8 million, went to management under the MIP. The remaining $52.2 million was distributed to holders of the company’s preferred stock—less than their total liquidation preference of $57.9 million, although some of the preferred stockholders received some gain on their initial capital investment. The holders of common stock received nothing.

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