Nine Tips for Venture Capital and Private Equity Funds Following In re Nine Systems Corporation Shareholders Litigation

Abstract

Delaware courts have recently been highly critical of boards of directors of venture capital- and private equity-backed private companies and the process by which related party transactions are conducted, approved, and ultimately consummated. Following the 2013 In re Trados Incorporated Shareholder Litigation and the 2014 In re Nine Systems Corporation Shareholders Litigation, practical tips to venture capital and private equity funds (and their representatives who serve on the boards of directors of their portfolio companies) are provided when considering significant transactions in which a venture capital or private equity fund may be treated more favorably than other holders of equity or other classes of equity. Transactions range from inside-round recapitalizations or financings to sales of the entire business.

TOPICS: Private equity, legal/regulatory/public policy, portfolio construction