Anatomy of a Silicon Valley VC Financing(シリコンバレーのVCファイナンスの概要)


Hi. This is John Sasaki again.

Here’s another photo of Ichigo. In this one, I think she looks like the Joker from Batman. What do you think?


The past couple of times I have posted articles targeting Japanese companies looking to do business in the U.S. This time, and at times in the future, I’d also like to spend some time focusing on Japanese investors looking to invest in Silicon Valley start-ups.

Let me start with a brief overview of Silicon Valley VC financing terms. This is not intended to provide you with a comprehensive explanation of Silicon Valley VC financing terms. However, hopefully this can serve as a framework for your better understanding of Silicon Valley VC financings.

1. Certificate of Incorporation vs. Contract

VC financing terms can be broadly divided into two categories: (i) terms in the certificate of incorporation; and (ii) contractual terms.(1)定款の条項と(2)契約の条項に分類できます。

In the U.S., the terms included in the certificate of incorporation are thought to be stronger rights from the investors’ standpoint. As discussed in my previous post, each U.S. state has its own requirements, but in general the certificate of incorporation is a publicly filed document, and a violation of a term in the certificate of incorporation results in a void act (which means, as a legal matter, it never happened).

On the other hand, a violation of a term in a contract (which is also governed on a state law basis, and thus may differ state-to-state) results in a breach of contract claim and not in a void act. This generally means that the investors can obtain monetary compensation, but cannot prohibit the act in question that violated the contract.

2. Terms in the Certificate of Incorporation

The VC financing terms in the certificate of incorporation reflect the terms of the preferred shares. In this regard, they are “attached” to the shares, which means that the terms apply to the shares regardless of any transfer of the shares.

a. Dividend Preference – Generally, this means that the company cannot distribute any dividend to common stockholders unless a dividend is first distributed to the preferred stockholders. There are different kinds of dividend preferences (e.g., cumulative vs. non-cumulative, participating vs. non-participating), and the dividend rate is generally intended to reflect the interest rate on a loan of an equivalent amount.

b. Liquidation Preference – Generally, this means that the company cannot distribute any assets of the company to common stockholders in a liquidating event unless a distribution is first made to the preferred stockholders. There are different kinds of liquidation preferences (e.g., participating vs. non-participating, capped vs. uncapped), and this preference typically also applies to a sale of the company (a so-called “deemed” liquidation).

c. Conversion – These provisions govern the conversion of the preferred stock into common stock. In addition to individual, voluntary conversion rights, there are also automatic conversion provisions, where all of the shares in a particular class or series are automatically converted at once based on a certain event (such as the election of a certain threshold of stockholders or a so-called “Qualified IPO”).

d. Anti-Dilution Protection – These provisions protect the preferred stockholders from dilution in the event of a “down round” (subject to certain exceptions). (A “down round” is a financing at a price per share lower than the price per share in the previous round.) There are different levels of protection, which are reflected in the conversion rate of the preferred stock into common stock. But the important points to remember are (i) anti-dilution protection applies only in a down round, and (ii) the protection is typically not a complete (i.e., full ratchet) protection from dilution.

e. Voting Provisions – There are generally two kinds of voting provisions included in the certificate of incorporation.

(1)Board Seats – These provisions entitle the holders of certain classes or series of shares to elect a certain number of directors. For example, the Series A Preferred Stock, by majority vote, may elect one director.

(2)Protective Provisions – These provisions entitle the holders of certain classes or series of shares to veto rights on certain matters (such as an amendment to the certificate of incorporation, a sale of the company or dissolution of the company). The vote threshold to exercise the veto right is typically a majority of the class or series, but may also be higher.

f. Redemption Rights – A redemption right entitles the holders of certain classes or series of shares to require the company to repurchase their shares. This right is not very common in Silicon Valley VC financings. And they are restricted under the corporate law of many states (similar to the restrictions on redemptions in Japan).

g. Pay-to-Play – Under a so-called pay-to-play provision, if a holder of a particular class or series of shares does not exercise its preemptive rights in a down round, its shares will be automatically converted into a weaker version of its preferred shares (typically losing its anti-dilution protection). In another iteration of a play-to-pay that is more disadvantageous to the investors, an investor’s shares may be automatically converted into common stock if it does not exercise its preemptive rights in a down round.

3. Contractual Terms

Contractual VC terms reflect agreements among the contracting parties regarding certain matters. These terms are separate from the shares themselves, so it is important to remember that they are not automatically assigned upon a transfer of the underlying shares. Contractual rights must be separately assigned.

A typical Silicon Valley VC financing includes four main contracts.

a. Stock Purchase Agreement – This agreement is the document that sets forth the terms and conditions of the purchase of the preferred shares, such as representations and warranties (of both the company and the investors) and closing conditions (such as the delivery of closing certificates and a legal opinion from company counsel). However, any ongoing obligations of the parties (which comprise most of the VC terms) are included in other agreements.

b. Investors’ Rights Agreement – This agreement sets forth the company’s obligations to the investors.

(1)Registration Rights – Registration rights allow the investors to require the company to register their shares with the U.S. Securities and Exchange Commission so that the investors can sell their shares in the public market. This is necessary in the U.S. because shares issued in a typical VC financing cannot be resold by the investors without registration (or an exemption from registration). It is important to note that the registration (or exemption) requirement applies to existing shares even after the company’s IPO. So, even after the IPO, if you wish to sell the shares you purchased in a VC financing, you will need registration rights (or an exemption from registration). Contrast this to Japan, where, after the IPO, all shares of the company become freely tradable.

(2)Information Rights – The typical information the company must provide to investors includes annual and quarterly financial statements, and annual budgets and operating plans. Information rights also typically include inspection rights.

(3)Preemptive Rights – A preemptive right allows an investor to maintain its shareholding percentage by requiring the company to offer a pro rata portion of any future financing to each existing investor.

c. Right of First Refusal and Co-Sale Agreement – This agreement sets forth the obligations of the founders to the investors (or of stockholders to other stockholders). It is sometimes called a “Stockholders Agreement”.

(1)Right of First Refusal – Under a typical right of first refusal provision, the investors have the right to purchase the shares of any founder that wishes to sell his/her shares (subject to certain exceptions). This is designed to allow the investors to prevent the founders’ shares from ending up with unknown third parties.

(2)Co-Sale Right – In contrast, the co-sale right entitles the investors to sell their shares if any founder wishes to sell his/her shares (subject to the same exceptions as in the right of first refusal). This is designed to allow the investors to exit their investment if the founders have decided to no longer be committed to the company (as indicated by the sale of the founders’ shares).

d. Voting Agreement – This agreement requires the stockholders to vote their shares in a certain way, and to take other related actions. It is important to note that this agreement usually includes an irrevocable proxy (which is enforceable in the U.S., but which is typically not in Japan). This means that, if you sign the agreement, your shares can be voted in accordance with the agreement even if you do not actually vote your shares.

(1)Board Seats – As mentioned above, under the certificate of incorporation, the holders of certain classes or series of shares may be entitled to elect a certain number of directors. In the Voting Agreement, specific stockholders (usually the lead investors and the founders) are entitled to designate the directors, and the other stockholders are required to vote for those designees.

(2)Drag-Along Rights – In a typical drag-along right, if a certain threshold of investors decides to sell the company (with the consent of the board and sometimes the founders), the other stockholders must vote in favor of the sale, and also take other related actions (including the actual sale of their shares to the buyer if the transaction is structured as a stock sale).

* * * * * * * * * * * * * *

The construction of a VC financing described above is not legally mandated for the most part, so there can be variations on the structure described above. Also, as mentioned above, this is not intended to be a comprehensive explanation, so please note that there are variations of the VC financing terms described above.

At times in the future, I will try to address specific issues related to Silicon Valley VC financings that may be useful to Japanese investors.

In the meantime, if you have any questions, please feel free to contact me at jsasaki@jsvlaw.com.







1. 定款 vs. 契約




2. 定款の条項


a. 配当優先  一般的に、優先株主にまず配当してからでないと、普通株主に配当できないことを意味します。配当優先にはいくつかの種類(累積か非累積か、参加型か非参加型かなど)があり、配当の割合は同等額のローンにおける利率を反映したものとするのが一般的です。

b. 優先分配 一般的に、清算の際に優先株主にまず分配してからでないと、普通株主に財産を分配できないことを意味します。優先分配にはいくつかの種類(参加型か非参加型か、上限の有無など)があり、優先分配を発行会社の買収にも適用する(いわゆる「みなし清算」)のが通例となっています。

c. 転換 優先株の普通株への転換に関する条項です。個別的、自主的な転換の権利のほか、一定の事由(例えば、一定持分を有する株主の請求や、いわゆる「適格IPO」など)に基づいて特定の種類(クラス又はシリーズ)の株式全部を一斉転換するような、自動転換の条項もあります。

d. 希薄化防止  「ダウンラウンド」(一定の例外を除く)による希薄化から優先株主を保護する条項です。(「ダウンラウンド」とは、以前のラウンドにおける一株当たり株価を下回る価額でのファイナンスのことです。)いくつかの保護のレベルがあり、それは優先株の普通株に対する転換比率に反映されます。ですが覚えておくべき重要なポイントは、(1)希薄化防止はダウンラウンドにのみ適用されることと、(2)希薄化からの完全な保護(例えばフルラチェットのような)ではないのが通例であるということです。

e. 議決権  定款に含まれる議決権の条項には一般的に2つの種類があります。

(1) 取締役の選任  一定のクラス又はシリーズの株主に一定数の取締役の選任権を与える条項です。例えば、シリーズA優先株の過半数で1名の取締役を選任できるといった内容です。

(2) 拒否権  一定のアクション(定款の変更、発行会社の買収、清算など)を拒否する権利を、一定のクラス又はシリーズの株主に与える条項です。拒否権の要件として典型的なのは、そのクラス又はシリーズの株式の過半数の同意を必要とするものであり、より高い割合を条件とすることもあります。

f. 償還請求権  償還請求権は、一定のクラス又はシリーズの株主に、発行会社に対して株式を買い取ることを請求する権利を与えるものです。この権利は、シリコンバレーのVCファイナンスではあまり一般的なものではありません。またこれは多くの州の会社法で、(日本の自己株取得の規制のように)制限されています。

g. ペイ・トゥ・プレイ  いわゆるペイ・トゥ・プレイ条項は、特定のクラス又はシリーズの株主がダウンラウンド時に新株引受権を行使しない場合に、その保有株式が自動的に当該優先株の弱いバージョンに転換される(典型的には希薄化防止の権利を失う)というものです。投資家により不利なペイ・トゥ・プレイのパターンとしては、ダウンラウンド時に新株引受権を行使しない場合に普通株式に自動転換されるというものもあり得ます。

3. 契約の条項



a. 株式引受契約  この契約は、優先株の引受の諸条件、例えば表明保証(発行会社と投資家双方)やクロージング条件(クロージングの証書、弁護士の意見書の提出等)といった事項を規定する書面です。但し、当事者の継続的な義務(これはVC投資の条項の大部分を占めます。)は、他の契約に規定されます。

b. 投資家の権利に関する契約  この契約では、発行会社の投資家に対する義務が規定されます。

(1) 登録請求権  登録請求権は、市場での株式売却を可能とするために、発行会社に対して米国証券取引委員会に株式を登録するよう請求できる権利を、投資家に認めるものです。これは米国では必要な権利です。なぜなら、一般的なVCファイナンスで発行された株式は、登録(又は登録しなくても良い例外要件に該当)しないと投資家はこれを売却することができません。この登録(又はその例外)要件は、株式公開後にも既存株式に対して適用されることを押さえておくことが重要です。したがって株式公開した後でも、VCファイナンスで取得した株式を売却したければ、登録請求権を有する(又は登録不要の例外要件に該当する)ことが必要です。上場すれば全株式を自由に取引できる日本と比べてみてください。

(2) 情報請求権  発行会社が投資家に対して提供すべき典型的な情報には、年次及び四半期の財務諸表、年間の予算・事業計画があります。調査の権利も情報請求権に含まれることが通例です。

(3) 新株引受権  新株引受権は、将来のファイナンスにおける各既存投資家に対する持株比率に応じた引受権の付与を発行会社に義務づけることによって、投資家の持株比率の維持を可能とするものです。

c. 先買権及び共同売却権に関する契約  この契約は、創業者の投資家に対する(又は株主の他の株主に対する)義務を規定するものです。「株主間契約」と言われることもあります。

(1) 先買権  典型的な先買権においては、投資家は株式の譲渡を希望する創業者から株式を購入する権利を有します(一定の例外があります。)。創業者の株式が見知らぬ第三者に渡ってしまうことを投資家が防ぐことができるように、規定されるものです。

(2) 共同売却権  反対に、共同売却権は、創業者が株式の譲渡を希望する場合に投資家も株式を売却できる権利を定めるものです(先買権と同様、一定の例外があります。)。創業者が発行会社にもはやコミットしないことを決意した(それ は株式の譲渡の事実から示されます。)場合に、投資家にも投資から脱退することができるように、規定されるものです。

d. 議決権に関する契約  この契約は、株主に一定の態様で議決権を行使し、それに付帯する行為をなすことを義務づけるものです。通常この契約には、取消不能な議決権行使の委任(日本では一般的に無効とされますが、米国では有効です。)が含まれるという点は重要です。つまり、この契約に署名したら、あなたの株式について実際にあなたが議決権を行使しなくても、契約に従った議決権の行使が行われ得ることになります。

(1) 取締役の選任  上記のとおり、定款において一定のクラス又はシリーズの株主に一定数の取締役選任権を与えることが可能です。議決権に関する契約では、特定の株主(通常はリード投資家及び創業者)が取締役を指名する権利を有し、他の株主は指名された者に票を投じる義務を負います。

(2) 強制売却権  典型的な強制売却権においては、一定持株比率の投資家が発行会社の売却を決定した場合(更に取締役会の同意、場合によって創業者の同意も条件として)、他の株主は当該売却に賛成票を投じ、関連する行為(株式売却のスキームの場合における、買主への実際の株式の売却行為を含みます。)をなさなければなりません。




【参考和文作成:弁護士 林 賢治】

和文の記事:AZX法律事務所 AZXのブログの記事: http://www.azx.co.jp/blog/?p=1273