Early stage companies are typically urged, and appropriately so, to ensure that their “charter documents,” specifically their certificate of incorporation and bylaws, are consistent with statutory requirements in their jurisdiction of organization, and reflect the short term and identifiable long-term objectives of the founding shareholders.  Many founders will search for “boilerplate” documents on the internet or other public sources, and as their enterprises grow, seek to modify those forms to cover such items as super-majority voting provisions, director removal provisions, etc.  Issues may arise, however, where those modifications are not consistent with statutory requirements.

For example, the Delaware Court of Chancery recently held in Frechter v. Zier, C.A. No. 12038-VCG, that a bylaw provision requiring supermajority stockholder approval for the removal of a director was inconsistent with Section 141(k) of Delaware’s General Corporation Law.  Section 141(k) provides that (other than in cases of staggered boards or cumulative voting) a director may be removed with or without cause by a majority of the voting stockholders.  While some provisions of the DGCL are based on a default rule that applies “unless otherwise provided in the certificate of incorporation or bylaws” the Court of Chancery held the majority standard set forth in Section 141(k) could not be modified by a bylaw provision.

The lesson taught by this decision is that it should not be assumed that statutory requirements may always be modified by inclusion of a contrary provision in a corporation’s certificate of incorporation or bylaws.  The starting point should always be a clear understanding of the statutory requirement.  The next step in the analysis is whether the statutory requirement is subject to modification within a corporation’s charter documents, and, if so, where that modification must be set forth in order to be enforceable.  In making this analysis, the different processes for how a corporation’s certificate of incorporation may be amended as compared to an amendment to a corporation’s bylaws must be considered.  In this regard, it should be noted that Section 102(b)(4) of the DGCL allows a corporation to include a provision in its certificate of incorporation that requires a supermajority vote for any corporate action.

Early stage companies, when drafting and amending their charter documents and considering such issues as general voting provisions, director removal, approval of corporate actions such as mergers, asset sales and dissolutions, should give appropriate thought to how the applicable statutory provisions require those issues to be addressed. Doing so will avoid statutory challenges to the validity of those actions in the future.

The U.S. Citizenship and Immigration Services recently published the International Entrepreneur Rule (the “Rule”), which finalizes regulations intended to increase and enhance entrepreneurship, innovation and job creation in the U.S.  The Rule becomes effective on July 17, 2017.  In a prior blog, we analyzed the Rule when it was first proposed in August 2016.  Since then, the Rule has been through a period of public comment.  The resulting amendments generally make it easier for foreign entrepreneurs to establish startup companies in the U.S.  However, the Rule was spearheaded by President Obama, and its future is reportedly uncertain under the new administration.

Statue of Liberty
Copyright: dvrcan / 123RF Stock Photo

The Rule establishes criteria for granting “parole” (temporary permission to be in the U.S.) to certain foreign entrepreneurs to facilitate their ability to oversee and grow their stateside startups.  These entrepreneurs must show that their startup has potential to grow rapidly, create jobs and provide a significant public benefit to the United States. Startups will be judged by, among other things, how much venture, angel or accelerator capital and/or government grants they’ve received.

Applicant entrepreneurs must have a substantial ownership interest in the startup entity and an active and central role in its operations.  They must show they would substantially further the entity’s ability to engage in R&D or otherwise conduct and grow its U.S. business.

In response to public comments, the final Rule is generally more entrepreneur-friendly than the proposed rule that we described in our original blog.  Some key changes are listed below.

  • Startup Formation: To apply, startup entities must be “recently” formed.  Under the original Rule, this meant that the startup entity must have been formed within three years of the parole application.  Under the final Rule, the timeframe is extended to five years.  Since the entire potential parole period is five years (discussed below), startups could be 8-10 years old during their re-parole period, a ripe time for exits.
  • Definition of Entrepreneur: Under the original Rule, a person was only an eligible entrepreneur if he or she owned at least 15% of the startup at the time of the initial parole application, and 10% at the time of re-parole.  Under the final Rule, the ownership thresholds are reduced to 10% and 5% respectively.  The change benefits teams of founders who split equity among themselves and accounts for dilution during future financing rounds.
  • Minimum Investment Amount: Under the original Rule, entrepreneurs were only eligible if their startup had received at least $345,000 from one or more “qualified investors” (discussed below).  These investments had to be received in the 12 months prior to applying.  Under the final Rule, the investment threshold is reduced to $250,000, reflecting analysis of median seed investments of firms graduating from accelerator programs.  The timeframe is extended to 18 months.
  • Qualified Investor Definition: Under the original Rule, an investor was considered “qualified” if it made investments in startups in at least three different years in the preceding five year period of no less than $1 million and if at least two of these investments created at least five qualified jobs or generated at least $500,000 in revenue, with annualized revenue growth of at least 20%.  Under the final Rule, the investment threshold is reduced to $600,000, again to reflect median seed investments for firms successfully exiting accelerators.  The three year requirement is eliminated, but the investment performance criteria remains the same.
  • Re-Parole: Under the original Rule, the initial parole period was two years and entrepreneurs could apply for a re-parole period of up to three years.  Under the final Rule, the initial parole period has been extended to 30 months, but the re-parole period has been reduced to 30 months.  The net result is that, despite the changes, the entire parole period remains five years.  The increase in the initial parole period will give entrepreneurs additional time to qualify for re-parole (receive qualified investments or government funding, increase revenue or achieve job creation).

Generally, the final Rule is responsive to issues raised during public comment, and the changes largely make it easier for foreign entrepreneurs to build their businesses in the U.S.  Despite the apparent benefits to the U.S. startup ecosystem, the Rule may be in jeopardy under the new administration.  Emerging Companies Insider will stay on top of the story as it develops.

The goal of many entrepreneurs is to seek venture capital financing or ultimately sell their company in an “exit” merger or acquisition. In each case, the company’s historical operations come under onerous pressure through the representations and warranties the seller is asked to make, and the related due diligence the seller must produce. To a small business, this can be extremely uncomfortable and/or challenging. To a big business, it may be more comfortable but nonetheless more demanding.

So why are they expected?

Puzzle pieces representing mergers & acquisitions
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Representations and warranties are often a glimpse into the business and its history of performance. To a buyer, these validate value and allocate risk. If you were buying a pharmacy, for example, wouldn’t you want the seller to represent and warrant that its financials are true and correct (validating the value), and that it is and has been licensed to sell pharmaceuticals (minimizing any risk of noncompliance or violations)? If the seller represents and warrants to these items and it turns out they are false, the buyer now has recourse against the seller (which reduces upfront risk and may make them whole).

Representations and warranties also facilitate fact-finding, as the buyer can rely on the seller’s representations and warranties, caveated by disclosure. For example, if the seller represents that it has provided the buyer with all of its material contracts (which is common) except for those disclosed, the buyer can review those contracts as part of its due diligence process of evaluating value, risk, and outstanding or potential liabilities.

Takeaway

Representations and warranties serve a good purpose for both parties to a transaction. Few businesses are sold “as is” for, among others, the above reasons. It is important to remember, however, that reps and warranties, like everything else in the transaction, are always subject to negotiation.

Patient-Focused Drug Development

Additional information focusing on the patient’s experience while using an investigative drug will be included in 505b submissions.   Input on the experience will be derived from any person, including patients, family members and caregivers of patients, patient advocacy organizations, disease research foundations, researchers, and drug manufacturers. Methodologies to collect such information will be issued in a guidance from the FDA.   Clearly, the FDA will be seeking more input regarding the experience of the patients, other than the manufacturer when determining the decision to approve a drug.

Advancing New Drug Therapies

There are new provisions in the Act which will allow the Secretary to establish a process for the qualification of drug/biologic development tools such as a biomarker, a clinical outcome assessment and any other method, material or measure that aids drug development and regulatory review.  Such submissions for the qualifications will have a transparent review process for all to see on the FDA website.  The purpose of qualifying development tools to encourage the development of genetically targeted drugs or biologics for rare diseases.   Other areas of interest will be drugs for serious or life-threatening diseases and a program will be developed to encourage treatments for rare pediatric diseases. Grants and vouchers for priority review of drugs for such conditions will be expanded by the FDA and other federal agencies.

 Modern Trial Design and Evidence Development

The Agency will consider sources for data regarding the usage or potential benefits or risks of a drug derived from sources other than randomized clinical trials. A framework for collecting this information shall be established with the consultation of industry, academia, medical professional organizations, representative of patient advocacy groups, consumer organizations, disease research foundations and other interested parties.  The goal is to consider other sources when determining regulatory approval and conditions for use of the drug/biologic.

Patient Access to Therapies and Information

Manufacturers of investigational therapies for serious diseases shall make available policies for inclusion of patients on a publicly available website. Certainly applications for regenerative advanced therapy under 505(b)(1) will be eligible for priority and accelerated review meeting certain criteria.  This will apply to cell therapy, therapeutic engineering products, human cell and tissue products, and combination products using such therapies or products.  By opening the door in this area the FDA will be issuing guidance for devices used in the recovery, isolation or delivery of regenerative advanced therapies.

Combination Products

To assist and streamline the review of all combination products consisting of a drug, device or biologic product, the Agency shall assign a Center to regulate these products.  The purpose is to streamline the review of these products and help focus on the “primary mode of action” and administer any requests for review by the sponsor of an application if the “primary mode of action” is in question and general shepherding the review process to approval.

Antimicrobial Innovation and Stewardship

The Agency shall continue to monitor, along with other federal agencies, those antimicrobial drugs which become resistant to humans. In a limited population, the FDA may approve an antibacterial or antifungal drug, alone or in combination with one or more other drugs, in a limited population those that are intended to treat a serious or life-threatening infection. Such drugs may be approved notwithstanding a lack of evidence to fully establish a favorable benefit-risk profile in a population that is broader than the intended limited population. Promotional material for such drugs will require preapproval 30 days prior to dissemination. The Agency will develop appropriate susceptibility test interpretive criteria and provide the information on its website.

Medical Device Innovation

A program will be established for expediting approval for breakthrough technologies for which there are no comparable technologies. In doing so, the Agency will work with the sponsor to help with a development plan. Certain criteria will be developed for determining if a device meets this designation.

Another area of importance and very much needed is the requirement for the Agency to clarify medical device software regulations.  With the evolving technology of medical devices, this is very much needed.

Note:  The implementation of these programs have varied timeframes from the passage of the 21st Century Cures Act on December 13, 2016

On January 10, 2017, the U.S. House of Representatives passed a bill commonly known at the “HALOS Act”, which directs the Securities and Exchange Commission (SEC) to revise Regulation D.  Prior to the proposed amendment, Regulation D exempts certain offerings from SEC registration requirements but prohibits “general solicitation” with respect to such offerings.  The proposed amendment states that the prohibition shall not apply to events with specified kinds of sponsors — including “angel investor groups” unconnected to broker-dealers or investment advisers — where presentations or communications are made by or on behalf of an issuer, but:

  • the advertising does not refer to any specific offering of securities by the issuer;
  • the sponsor does not provide investment recommendation or advice to attendees, engage in investment negotiations with attendees, charge certain fees, or receive certain compensation; and
  • no specific information regarding a securities offering is communicated beyond the type and amount of securities being offered, the amount of securities already subscribed for, and the intended use of proceeds from the offering.

If the bill becomes law, early stage companies which present at demo days and other “pitch events” will have clear guidance that such actions are exempt from violating the SEC’s prohibition on “general solicitation”, avoiding the need to verify investors as “accredited” as a result of their pitches.  Investors likewise would have better assurances that companies have not tripped the general solicitation trigger.


Matthew R. Kittay is a corporate attorney in Fox Rothschild’s New York office and Co-Chair of the American Bar Association’s Angel Venture Capital Subcommittee.

This week, the Senate passed an expansive health bill known as the “21st Century Cures Act” after the bill received approval from the House earlier this year.  Due to its far-reaching effects in the healthcare and life science industries, among others, the bill was one of the more lobbied pieces of legislation in recent history.  President Obama is expected to sign the bill into law by the end of the year.

Highlights of the bill include significant amounts earmarked for improving cancer research (including funding for the Cancer Moonshot initiative championed by Joe Biden), fighting the epidemic of opioid abuse, making improvements in mental health treatment, helping the Food and Drug Administration (FDA) speed up drug approvals, and facilitating improved use of technology in medicine (such as the Brain Research through Advancing Innovative Neurotechnologies® (BRAIN) Initiative and the Precision Medicine Initiative).

Below is a brief summary of winners and losers under the bill:

Winners

  • Healthcare Information Technology and Software Companies: Healthcare IT companies and data management companies are set to gain millions of dollars in new business as a result of incentives in the bill for federal agencies and healthcare providers to use electronic health records systems and enhance research and treatment through the collection of electronic data.
  • Pharmaceutical and Medical Device Companies: The bill allows the FDA to require fewer studies from pharmaceutical and medical device companies and gives the FDA additional resources to speed up approvals. This will likely allow drug and device companies to save billions of dollars in bringing products to market.
  • Medical Schools, Hospitals and Physicians: Subject to annual appropriations, the bill provides $4.8 billion over 10 years in additional funding to the National Institutes of Health. This funding is intended to open the door to hundreds of millions in additional research grant dollars for researchers at universities and medical centers, many of whom will be focusing on cancer, neurobiology and genetic medicine.
  • Mental Health and Substance Abuse Advocates: The bill provides $1 billion in state grants over 2 years to address opioid abuse and addiction. The majority of this amount will fund both new and existing treatment facilities, while the remainder will fund improvements in mental health research and treatment.
  • Patient Groups: Many specialty disease and patient advocacy groups receive a portion of their funding from drug and device companies. With the allocation of additional dollars and requirements for more patient input in the drug development and approval process under the bill, these patient groups are slated to wield more power and influence.

Losers

  • Preventive Medicine: The bill cuts $3.5 billion, or about 30 percent, from the Prevention and Public Health Fund previously established under Obamacare. This fund promotes prevention of Alzheimer’s disease, hospital-acquired infections, chronic illnesses and other ailments.
  • The FDA: The bill provides the FDA with an additional $500 million through 2026 and more hiring authority. A win?  Sure, but the FDA contends that these measures aren’t enough to offset the additional workload that the bill will impose on its resources.  In addition, the agency fought and lost with respect to a controversial voucher program which awards companies that approve drugs for rare pediatric diseases.
  • Consumer and Patient Safety Groups: Many consumer and patient safety advocates (such as Public Citizen and the National Center for Health Research) are adamant that the bill will result in unsafe drug and device approvals and doesn’t address rising drug costs.
  • Hair Growth Patients: Under the bill, federal Medicaid will no longer help pay for drugs that help patients restore hair. Hair growth patient advocates such as the National Alopecia Areata Foundation spent significant sums of money to fight this.

While some of those against the bill continue to be disappointed and claim that “Congress gave Big Pharma and the medical device industry an early Christmas present by passing the 21st Century Cures Act”, most seem to be encouraged by lawmakers’ renewed and bipartisan efforts to focus on scientific research, effective care delivery, and the removal of barriers to scientific progress.


Update: A representative of the National Alopecia Areata Foundation (NAAF) recently reached out to me regarding this post. I think it’s important to clarify that NAAF does not oppose the Act – on the contrary, it has been supportive of it. They had spent significant sums specifically for greater insurance parity through the bill for those with alopecia areata so they could better afford cranial prosthetics, but were unsuccessful. They have worked toward a separate bill introduced in the House in April, the Cranial Prosthetic Medicaid Coverage Enhancement Act, to address the issue via Medicaid.

A recently passed House bill would permit certain start-up employees to defer taxes on stock options and restricted stock units (RSUs).  The proposed legislation aims to help emerging companies attract and retain talent by offering equity compensation on more attractive terms.

Business Taxation
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Cash-strapped start-ups often grant an ownership stake to employees to compensate for below-market wages.  This strategy also aligns incentives by giving employees a share of the company’s growth.

However, current tax law makes such equity compensation less attractive than it might otherwise be.  When employees exercise their stock options or when RSUs vest, they must pay taxes on the excess difference between the current fair market value and the purchase price.  Of course, the employee hasn’t actually pocketed any cash.  So the income is “phantom” income, but the tax burden is real.  Public company employees have the option to sell shares on the open market, but there is typically no market for private company stock.  Employees must choose between paying taxes out of pocket or foregoing their ownership stake.  This Hobson’s choice can dilute the value of equity compensation, making it more difficult for emerging companies to attract top talent.

The Empowering Employees through Stock Ownership Act (the “Act”) seeks to alleviate this tax burden on illiquid income.  Qualified employees working at eligible companies could defer paying taxes on income from qualified stock for up to 7 years.  Let’s unpack those terms:

  • Qualified Employee:  To take advantage of the tax deferral, employees must be “qualified employees”.  This includes all employees except certain owners and officers:  owners of 1-percent or more of the company, certain executives (CEO, COO or individuals acting in such capacity), and the company’s four highest earning officers are excluded.
  • Eligible Companies:  The Act is intended to incentivize broad-based employee ownership.  If a company wants its employees to qualify, it must have a written plan under which at least 80% of all U.S. employees who provide services to the company are granted stock options or RSUs on an annual basis.  The company must also offer stock options or RSUs to employees on similar terms.  Finally, the company cannot be traded on an established market.
  • Qualified Stock:  Qualified stock includes stock received in connection with the exercise of a stock option or vesting of a RSU.  The stock must be received as compensation for services performed as an employee of the company.  Importantly, stock is not qualified if the employee has the right to sell the stock to the company at the time of exercise or vesting or to otherwise receive cash in lieu of the stock.
  • 7-Year Deferral:  Employees are currently required to pay taxes in the year in which they exercise stock options or their RSUs vest.  Under the Act, employees would not have to recognize (or pay taxes on) this income until 7 years after exercise or vesting.  Certain triggering events could cause employees to have to pay taxes prior to the 7-year anniversary:  if the stock becomes transferable (including to the employer), if the employee becomes an excluded employee, if the stock becomes tradeable on an established market, or if the employee revokes the election.

Despite some controversy over how this tax deferral will be paid for, the Act is generally receiving praise as a move to strengthen the economy and create jobs by helping early stage companies attract the talent that will help them succeed.

A recent ruling by the Nebraska Supreme court reminds franchisors to properly renew their Franchise Agreements with their franchisees as they may lack contractual protection, and in the least clarity, as to their rights in the case of hold-over franchise arrangements.  Though in the franchise context, much of the lessons learned from this case may apply to any contractual arrangement where the parties have not tended to the proper renewal of the contract.  I find this happens fairly frequently for start-up and emerging companies, which seems to be the case of the franchisor below, who are trying to conserve legal costs and/or who do not have the strong administrative staff of a more developed company.

Glazed donuts
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In Donut Holdings, Inc. v. William Risberg, — N.W.2d —, 294 Neb. 861 (Neb. Sept. 30, 20160), the Nebraska Supreme Court affirmed a trial court’s decision that a franchisor was not entitled to recover lost royalties or fees from a hold-over franchisee for the time period after the franchisor notified the franchisee that the franchise agreement had expired.  In this case, neither the franchisor or franchisee took action to renew the franchise agreement when it expired in 2004 and the parties continued to operate, including the payment of royalties and advertising fees, as if the franchise agreement were in effect until 2009.  In 2009, the franchisee ceased paying the franchisor and, in response, the franchisor sent a letter stating  “the agreement had expired in 2004, and that [the franchisee] should review the provisions of the franchise agreement relating to its obligations upon the expiration of the franchise.”  The franchisee apparently continued to operate without payments to the franchisor until 2012.

The franchisor sued the franchisee for breach of contract and claimed damages in compensation of lost royalties and advertising fees from 2009 through 2012.   This was brought as a breach of contract claim.  The franchisor apparently did not bring any tort or statutory claims such as unjust enrichment or unfair competition.  The trial court denied the franchisor’s breach of contract claim and the Supreme Court agreed, holding that while the parties had an implied in fact contract from 2004 to 2009, the franchisor’s 2009 letter terminated that implied contract.   The franchisor did argue that they should be allowed to recover royalties and fees as the franchisee continued to use franchisor’s recipes and trademarks after 2009, but the court rejected that argument since the franchisor had not plead unjust enrichment.

In summary, this case is a strong reminder that parties to an agreement may lack contractual protection in the situation of a hold-over contract and should endeavor to prevent this situation from happening by renewing their agreements in accordance with their terms.  However, should they find themselves with a hold-over agreement, they should consider also seeking tort or statutory remedies when enforcing their rights.

Founding a company is an exciting moment in an entrepreneur’s career.  But even on Day 1, there are steps entrepreneurs should take to avoid major financial and diligence issues in the future.  In this series of posts, we’ll cover some basics that often trip up founders to help guide you through those early steps.

Entrepreneurs often assume they own their company de facto (i.e., by virtue of the fact that they formed it, without any other required action)- a proposition that seems so logical and fundamental, it’s hard to believe its not true.

45594856 - fit and confident woman in starting position ready for running. female athlete about to start a sprint looking away. bright sunlight from behind.

Later in their company’s lifecycle (typically, when there’s pressure on due diligence because the founders either consult an attorney knowledgeable in the space or there’s an interested incubator, accelerator or angel investor), many founders are surprised to learn that after forming their company, they must take another critical step to become shareholders in the company they founded – purchasing their company’s stock.

This often overlooked step works to the founder’s benefit, when it’s done correctly.  In fact, we often tell founders that the ability to purchase their company’s stock on Day 1 is one of the core economic upsides to founding a business in the first place.  While this seems backwards (why should you have to buy stock in a company founded by you- isn’t that the investor’s role?), it makes sense considering the price the founders pay for that stock, as long as the stock is purchased at or near the time of formation of the company.  Because at formation of the company, there’s typically no assets or value associated with the company other than the nominal par value of the stock, allowing a founder to purchase their shares at a fraction of a penny per share (whatever the par value is set to).

Of course, there’s nuances and unique circumstances to each company formation that need to be discussed with your lawyer and financial advisor.  Sometimes, there is real value associated with the stock, even on Day 1 (for example, if the company is a spinout with assets).  And there are other steps that a prudent founder or founding team may need to take at inception along with the purchase of their stock (e.g., consider imposing vesting restrictions on the stock and filing an 83(b) election).

But first things first, make sure you purchase your stock on Day 1, before that hockey stick growth you’re projecting becomes a reality…

Fox Rothschild’s Emerging Company Resource Center includes formation document checklists developed by our nationally recognized emerging companies attorneys; information on relevant intellectual property issues (trademarks, patents, licenses); data room portals for investor due diligence; and other resources for emerging companies.  We encourage our entrepreneurs to reach out to us with questions as they grow their company with these resources. 

A new rule proposed by the U.S. Citizenship and Immigration Services (USCIS) grants limited entrée to entrepreneurs establishing stateside startups.  The “International Entrepreneur Rule” would permit the Secretary of Homeland Security to offer parole (temporary permission to be in the U.S.) to individuals whose businesses provide “significant public benefit.”

Who Qualifies?

Statue of Liberty
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So what is a “significant public benefit”?  According to the proposed rule, an entrepreneur can meet this standard by demonstrating that the startup has substantial potential for rapid growth and job creation, and that the entrepreneur’s parole would significantly help the startup conduct and grow its business in the US.

These are still abstract concepts, so the rule proposes benchmarks to evaluate entrepreneurs and their businesses. To qualify:

  1. The startup must be recently formed in the U.S. (i.e., generally within 3 years of its application).
  2. The individual must possess a substantial ownership interest in the entity (i.e., generally 15% or more) and have an active and central role in the business.
  3. The entity must have:
    1. received substantial investment from qualified investors (at least $345,000) with established records of successful investments; or
    2. received substantial awards or grants from certain governmental entities (at least $100,000); or
    3. partially satisfied one or both of the above criteria and must submit additional evidence of potential public benefit (e.g., acceptance into a startup accelerator, creation of new technologies or focus on cutting-edge research).

Notably, “qualified investors” are not determined based on the traditional definition of “accredited investors.”  Instead, the proposed rule focuses on investors’ track records.  Specifically, a startup must show that its investors have a history of making startup investments on a regular basis over a five-year period and that at least two of their investments have experienced significant growth in revenue or job creation.

For How Long?

Initial parole terms are for up to two years, and grantees have the opportunity to apply for an additional term of up to three years.  Renewal applications are determined on similar criteria as above, but thresholds differ.  For example, renewal applicants only need to own 10% of the startup, to account for dilution due to financing rounds during the initial parole period.

Join the Debate

The DHS is currently seeking public comments on the proposed rule, including with respect to the definition of “entrepreneur” and investment thresholds.  The proposed rule is a step in the right direction, but will generate comment and criticism, especially regarding its balancing act of encouraging innovation, promoting the public benefit and preventing fraud.  While investment thresholds are intended to weed out lifestyle businesses, they may also eliminate endeavors that serve the public good but are not scalable or otherwise likely to provide market venture returns.  The five-year maximum parole term seems a close shave given the time it can take from founding to exit (even the proposed rule recognizes that from 2009-2012 the average age of a company at public exit was 7.9 years).  Finally, focusing on investor track records instead of traditional accreditation concepts may discourage bad faith parole-for-cash investments, but it is likely to generate uncertainty.

These issues are likely to be addressed during public comment, and perhaps resolved before final publication.  The effort is certainly praiseworthy and may permit one or more foreign entrepreneurs to build their “New Colossus.”