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Archive for August, 2012

Emotional Venting in a Stuck Company. Episode 1: Leadership by Jim McHugh member Gerbsman Partners Board of Intellectual Capital

Posted in Board Of Intellectual Capital, James McHugh- McHugh & Co., Leadership, Uncategorized on August 12, 2012| Leave a Comment »

Emotional Venting in a Stuck Company. Episode 1: Leadership

08/08/2012 By

“When people talk, listen completely. Most people never listen.”— Ernest Hemingway

When you are trying to figure out why a company is underperforming, where do you begin? What should be your starting point?

You can learn a tremendous amount right away by simply talking with, and listening to, the company’s people — the CEO, the management team, the employees, the investors, the Board, and other key shareholders.

Although that sounds obvious or even trite, it’s just common sense.  Listening carefully to what people are saying, absorbing it, and twirling it around a bit is a necessary prelude to delving deep into data.  If a company is stuck, emotions may squelch thoughtful, deliberate action, especially if the stuck situation has been going on for some time.

During CEO coaching, people of stuck companies talk and I hear three big themes:

  • concerns about LEADERSHIP
  • angst about EXTERNAL FORCES
  • confusion about OPERATIONS

Episode 1 illustrates the emotional reactions of a stuck company’s key people about leadership – the unfiltered, raw, spill your guts variety. Their voices express what they live everyday.

Episode 2 will be the angst caused by External Forces; Episode 3 will reveal confusion about Internal Ops.

Consider this one emotional exchange…

Brother A: My brother’s head in the sand attitude is going to strangle this company!
Brother B: My brother’s outlandish growth ideas will destroy all we have worked for.

Where do you go with that opening salvo? The real story was someplace in between…and that’s the essential point here.

 

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Biotech Start-Ups See Benefits from Changing Structure, Lawyer Says – Venture Capital Dispatch

Posted in Biotech, Inetellectual Property, Life Science, Venture Capital, Venture Capital Dispatch on August 11, 2012| Leave a Comment »

Biotech Start-Ups See Benefits from Changing Structure, Lawyer Says

By Brian Gormley

Albert L. Sokol has been pondering the problems facing biotechnology start-ups and has come to a conclusion: many could improve their outlook by shifting their structures.

Sokol, a partner with the law firm Edwards Wildman Palmer, recently has helped two venture-backed biotechs convert from C corporations to limited liability companies, a change that he and some venture capitalists say could help many young drug-makers.

Because not enough of these companies have been acquired or gone public in the past few years, venture firms have been investing less in biotech. U.S. investment fell 45% to just over $1 billion in the first half of this year compared to the same period of 2011, according to VentureSource, which is owned by Dow Jones & Co., publisher of Venture Capital Dispatch.

The problem for many biotechs is that they try to sell themselves whole in one large transaction, according to Sokol. While that’s possible, it’s become more difficult given that the pool of acquirers has become shallower after a recent series of pharmaceutical-industry mergers. Many biotechs would be better off selling individual drugs from their pipelines in a series of smaller deals that, in the aggregate, would add up to more than they would have gotten if they had sold their business all at once, according to Sokol.

When corporations buy a biotech whole, they typically make offers that primarily reflect the value of the drugs that interest them. Start-ups that agree to these deals get little or nothing for their other products. By selling drugs piecemeal, a start-up can wring more value from each one, and buyers don’t have to spend time evaluating therapies that don’t interest them, according to Sokol. The biotech can then pass the gains from each sale on to venture investors, giving these firms a steady stream of income.

The approach is well-suited to biotechs with technology to continually produce new drugs, Sokol said. That would describe Forma Therapeutics and Viamet Pharmaceuticals, the two companies he has helped convert into LLCs, a more tax-efficient structure for passing on profits of asset sales to investors than a C corp.

There’s another reason to consider reorganizing as an LLC: employees are often better off if the company is sold whole, according to Sokol.

“Don’t think just about making life better for your investors,” Sokol said. “It’s all about optimizing it for all your constituencies.”

Employees in a C corp. usually receive stock options instead of shares. This way, they don’t have to pay for the shares and be taxed on them right way. But most people wait too long to exercise their options, Sokol said. As a result, they pay the short-term capital-gains tax rate, which is roughly double that of the long-term rate, when the company is sold. This isn’t a problem in an LLC, because employees are granted shares instead of options.

Employees of an LLC receive profits-interest shares, which aren’t taxed when they’re issued. Here’s the reason: if a start-up is worth $20 million on the day an employee receives profits-interest shares, and the company is sold that same day, the new worker would get nothing until his more senior colleagues got at least $20 million. If the company is sold five years later, when the business is worth more, that employee would pay the long-term capital-gains tax rate on the gains he makes from the sale of the profits-interest shares.

During his five-year employment, he has every incentive to help increase the company’s value. Otherwise, he’ll get nothing for his profits-interest shares.

“If you have a group of employees you’re trying to incentivize, that’s pretty cool,” Sokol said.

Write to Brian Gormley at brian.gormley@dowjones.com

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$10M Would Be Seventh Heaven for China’s AngelVest – Venture Capital Dispatch

Posted in China, Entrepreneurship, Inetellectual Property, Technology Incubators, Venture Capital, Venture Capital Dispatch on August 9, 2012| Leave a Comment »

ugust 9, 2012, 9:52 AM

$10M Would Be Seventh Heaven for China’s AngelVest

By Sonja Cheung

Shanghai-based AngelVest is targeting up to $10 million for its inaugural fund that will invest in China-based start ups, said co-founder David Chen.

Having “literally” just completed the legal documents for AngelVest Fund LP, the firm expects to close the fund in the next 12 to 18 months, with commitments largely from family offices based in Hong Kong, Singapore and the U.S., he said.

Read the full story here.

Traditionally, AngelVest members have clubbed together to invest in portfolio companies that include mobile business SmarTots and foreign language website iTalki.com. The latter recently closed a second round of angel investment that was partly backed by AngelVest, said Kevin Chen, co-founder of the Shanghai-based business. It will likely tap the venture market for a $2 million to $3 million Series A round in the first half of 2013, he added, declining to disclose the size of the recent angel round.

AngelVest invests $250,000 per company, and has no immediate intentions of increasing that amount and graduating to venture capital-size rounds, said David Chen.  “We’re sticking to our guns, if anything, we’d look to raise multiple funds in different cities,” he added, noting that AngelVest is considering setting up a group for angel investors based around the south of China in Guangzhou and Shenzhen, as well as Hong Kong.

Write to Sonja Cheung at Sonja.Cheung@dowjones.com. Follow her on Twitter at @SonjaCheung

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Update to the Bidding Process – Procedures for the sale of certain assets of LumaTherm, Inc.

Posted in "Date Certain M&A Process", Distressed Intellectual Property, Distressed IP, Inetellectual Property, LumaTherm, Medical Device, Uncategorized on August 7, 2012| Leave a Comment »

Update to the Bidding Process – Procedures for the sale of certain assets of LumaTherm, Inc.

Further to Gerbsman Partners e-mail of July 24, 2012 and July 10, 2012 regarding the sale of certain assets of LumaTherm, Inc., I attach the draft legal documents and deposit wire instructions to Murray & Murray that we will be requesting of bidders for certain assets of LumaTherm, Inc.  All parties bidding on the assets are encouraged, to the greatest extent possible, to conform the terms of their bids to the terms and form of the attached agreements.  Any and all of the assets of LumaTherm, Inc. will be sold on an “as is, where is” basis.  I would also encourage all interested parties to have their counsel speak with Stephen O’Neill, Esq. or Doris Kaelin, Esq., counsel to LumaTherm, Inc.

For additional information please contact Stephan O’Neill, Esq., or Doris Kaelin, Esq. of Murray & Murray counsel to LumaTherm, Inc.  They can be reached at 408 907-9200  and/or at      soneill@murraylaw.com

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the LumaTherm Assets. Sealed bids must be submitted so that the bid is actually received by Gerbsman Partners no later than Thursday, August 23, 2012 at 5:00pm Central Daylight Time (the “Bid Deadline”) at LumaTherm, Inc.’s office, located at 12600 Northborough Drive, Suite 220, Houston, TX  77067.  Please also email steve@gerbsmanpartners.com with any bid.

For your convenience, I have restated the description of the Updated Bidding Process.

The key dates and terms include:

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a Confidential Disclosure Agreement (attached hereto as Appendix B) to have access to key members of management and intellectual capital teams and the due diligence “war room” documentation (“Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has had an opportunity to inspect and examine the LumaTherm, Inc. assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, ortheir respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the LumaTherm, Inc. assets. Each sealed bid must be submitted so that it is received by Gerbsman Partners no later than Thursday, August 23, 2012 at 5:00pm Central Daylight Time (the “Bid Deadline”) at LumaTherm, Inc.’s office, located at 12600 Northborough Drive, Suite 220, Houston, TX  77067.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. In particular, please identify separately certain equipment or other fixed assets.  The attached LumaTherm, Inc. fixed asset list may not be complete and bidders interested in the LumaTherm, Inc. equipment  must submit a separate bid for such assets.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase.  All bids must be accompanied by a refundable deposit in the amount of $200,000 (payable to LumaTherm, Inc.).  The deposit should be wired to LumaTherm, Inc.’s attorneys Murray & Murray, A Professional Corporation.  The winning bidder will be notified within 3 business days of the Bid Deadline. The deposit will be held in trust by LumaTherm’s counsel.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.

LumaTherm, Inc. reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder andbidders may not have the opportunity to improve their bids after submission.

LumaTherm Inc. will require the successful bidder to close within a 7 day period. Any or all of the assets of LumaTherm, Inc. will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the LumaTherm, Inc. assets shall be the sole responsibility of the successful bidder and shall be paid to LumaTherm, Inc. at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456-0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408)591-7528
ken@gerbsmanpartners.com

Philip Taub
Gerbsman Partners/Foundation Ventures
(917) 650-5958
phil@gerbsmanpartners.com   ptaub@foundationventures.com

Stephen O’Neill, Esq. – Doris Kaelin, Esq.
Murray & Murray
(408) 907-9200
soneill@murraylaw.com

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As Knight Capital Gains a Lifeline, It Loses Market-Making Duties

Posted in Board Of Intellectual Capital, Business models, Distressed IP, Economy, Intellectual capital, International Finance, internet, Internet Security, Investments, Market research, Strategy, Technology, Venture Capital, tagged , , , , , , , , , , , , , on August 6, 2012| Leave a Comment »

Article from NYTimes.

The Knight Capital Group confirmed on Monday that it had struck a $400 million rescue deal with a group of investors, staving off collapse after a recent trading mishap, even as the New York Stock Exchange temporarily revoked the firm’s market-making responsibilities.

The rescue package, which was arranged by the Jefferies Group, includes investments from TD Ameritrade and the Blackstone Group. Getco and Stifel, Nicolaus & Company were also involved.

“We are grateful for the support of these leading Wall Street firms that came together to invest in Knight,” Tom Joyce, the firm’s chairman and chief executive, said in a statement. “The array of participants in this capital infusion underscores Knight’s critical role in the capital markets.”

In a regulatory filing, Knight Capital said the investors agreed to purchase $400 million of the brokerage firm’s preferred stock. Under the terms of the deal, Knight will also expand its board by adding three new members.

The deal could provide the investors with more than 260 million shares of the firm, affording the investors the right to buy the shares at $1.50 a piece, according to the statement. Last week, before the trading blunder, the firm’s shares closed over $10.

The rescue deal will hugely dilute existing shareholders of the company. In mid-morning trading, shares of Knight Capital were down 24 percent.

The lifeline was assembled in the wake of Knight Capital’s disclosure of a $440 million trading loss. The loss stemmed from a technology error that occurred on Wednesday when the firm unveiled new trading software, a glitch that generated erroneous orders to buy shares of major stocks. The orders affected the shares of 148 companies, including Ford Motor, RadioShack and American Airlines, sending the markets into upheaval.

Knight Capital said it reached the deal on Sunday, and it expected to close the transaction on Monday. It was a rapid a recovery for a firm that just days ago was facing collapse.

Still, the firm faces significant challenges. The New York Stock Exchange said on Monday it “temporarily” reassigned the firm’s market-making responsibilities for more than 600 securities to Getco, the high-speed trading firm that also invested in Knight. Market makers buy and sell securities on behalf of clients.

The move, the exchange said in a statement on Monday, was a stop-gap measure needed until the investor deal was final. Once the recapitalization plan is complete, Knight will resume its duties.

“We believe this interim transition is in the best interests of investors, our listed issuers, market stability and efficiency, as well as Knight, as the firm finalizes its equity financing transaction,” Larry Leibowitz, chief operating officer of NYSE Euronext, said in the statement.

Knight Capital also faces heavy regulatory scrutiny. The Securities and Exchange Commission is examining potential legal violations as it pieces together the firm’s missteps.

The problems for Knight Capital began at the start of trading on Wednesday. The firm tweaked its computer coding to push itself onto a new trading platform that the New York Stock Exchange opened that day. Under this program, trades from retail investors shift to a special platform where firms like Knight compete to offer them the best price.

But when Knight’s new system went live, the firm “experienced a human error and/or a technology malfunction related to its installation of trading software,” the firm explained in the filing on Monday.

Chaos ensued. The error caused Knight to place unauthorized offers to buy and sell shares of big American companies, driving up the volume of trading and causing a stir among traders and exchanges.

Knight had to sell the stocks that it accidentally bought, prompting a $440 million loss. The loss drained Knight’s capital cushion and caused “liquidity pressures,” the firm said in the filing.

“In view of the impact to the company’s capital base and the resultant loss of customer and counterparty confidence, there is substantial doubt about the company’s ability to continue as a going concern,” the filing said.

Knight and its chief executive, Thomas M. Joyce, began contacting potential suitors for parts of the business, and the firm consulted restructuring lawyers on a potential Chapter 11 filing, according to the people with direct knowledge of the matter.

But events soon turned in the firm’s favor.

The firm secured emergency short-term financing that allowed it to operate on Friday, and it used Goldman Sachs to buy at a discount the shares Knight had erroneously accumulated.

Some of the firm’s biggest customers, including TD Ameritrade and Scottrade, said that they had resumed doing business with Knight by Friday afternoon.

The firm capped its efforts to stay afloat on Sunday with the rescue deal. Knight expects to finalize the agreement on Monday morning and detail the financing terms in a regulatory filing.

“Knight’s financial position and capital base have been restored to a level that more than offsets the loss incurred last week,” Mr. Joyce said in a statement. “We thank our clients, employees and partners for their steadfastness during a brief yet difficult period and we are getting back to business as usual.”

Read more here.

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