Security Forward Agreements: Understanding and Application in Venture Capital

In the realm of finance, Security Forward Agreements stand as pivotal instruments for managing risk, hedging against price fluctuations, and facilitating strategic investments. This comprehensive exploration delves into the intricacies of Security Forward Agreements, particularly in the context of venture capital. We will elucidate their fundamental concepts, mechanics, benefits, risks, and specific applications within the venture capital landscape.

Understanding Security Forward Agreements

Definition and Components

A Security Forward Agreement, often simply referred to as a forward contract, is a financial derivative contract between two parties where they agree to exchange a specific asset (the underlying security) at a predetermined price (the forward price) on a future date (the maturity date). Unlike options, which provide the buyer with the right but not the obligation to buy or sell the underlying asset, forwards bind both parties to fulfill the contract.

The agreement typically includes:

  • Underlying Asset: This can be any financial instrument, commodity, or security whose price can be determined and agreed upon.
  • Forward Price: The price at which the asset will be exchanged in the future.
  • Maturity Date: The date when the exchange of the asset occurs.

Forward contracts are customized agreements traded over-the-counter (OTC), which means they are not standardized and can be tailored to meet the specific needs of the parties involved. This flexibility allows for a wide range of applications across different sectors of finance.

Mechanics of a Security Forward Agreement

To grasp the mechanics of a Security Forward Agreement, consider the following example involving a venture capital scenario:

Imagine a venture capitalist (VC) firm is interested in investing in a promising startup that plans to go public in the next two years. The VC firm anticipates significant growth in the startup’s valuation upon its IPO but is concerned about potential fluctuations in the stock price post-IPO. To mitigate this risk, the VC firm enters into a Security Forward Agreement with a counterparty, agreeing to purchase a certain number of shares of the startup at a predetermined price per share on the IPO date.

Let’s break down the steps involved:

  1. Agreement Initiation: The VC firm and the counterparty negotiate and agree on the terms of the forward contract. This includes specifying the number of shares, the forward price per share, and the maturity date (the IPO date).
  2. Execution: On the IPO date, regardless of the actual market price of the shares, the VC firm is obligated to purchase the agreed-upon number of shares from the counterparty at the predetermined forward price.
  3. Settlement: Settlement of the contract occurs either through physical delivery of the shares and payment of the agreed-upon price or through a cash settlement, where the difference between the forward price and the actual market price on the IPO date is settled financially.
  4. Purpose: The primary purpose of this forward contract is for the VC firm to hedge against potential price volatility post-IPO. By locking in a purchase price now, the firm can protect itself from adverse price movements and potentially capitalize on expected gains in the startup’s valuation.

Benefits of Security Forward Agreements

Security Forward Agreements offer several advantages to participants in venture capital and other financial markets:

  1. Risk Management: They provide a tool for hedging against price fluctuations, thereby reducing exposure to market volatility.
  2. Price Discovery: Forward contracts facilitate price discovery by allowing parties to agree upon a future price today, based on their expectations of market movements and fundamentals.
  3. Customization: Contracts can be customized to fit specific needs and circumstances, making them versatile instruments in portfolio management and strategic investment planning.
  4. Liquidity Management: For venture capital firms and other institutional investors, forward contracts help manage liquidity by allowing them to plan and allocate funds effectively over time.
  5. Speculation: They can also be used for speculative purposes, allowing investors to take positions on future price movements of assets without needing to own them outright.

Application in Venture Capital

Risk Mitigation in Pre-IPO Investments

Venture capital firms often face substantial risks when investing in startups, particularly those that are not yet publicly traded. These risks include uncertainty about the startup’s future valuation, market conditions post-IPO, and liquidity concerns. Security Forward Agreements can be instrumental in mitigating some of these risks:

  • Valuation Stability: By entering into forward contracts prior to an IPO, venture capitalists can secure a purchase price for shares of the startup, thereby stabilizing their investment valuation against potential market fluctuations.
  • Liquidity Planning: Forward contracts allow VC firms to plan their cash flows and liquidity needs more effectively, as they know in advance the amount and timing of their financial obligations related to the investment.
  • Exit Strategy Enhancement: For venture capital funds nearing the end of their investment horizon, forward contracts can facilitate smoother exits from portfolio companies by locking in exit prices and mitigating the impact of market volatility.

Strategic Investment Planning

Beyond risk management, Security Forward Agreements play a strategic role in the investment planning of venture capital firms:

  • Portfolio Diversification: They enable VCs to diversify their portfolios and manage exposure to specific sectors or types of startups without being overly dependent on the timing and conditions of public market exits.
  • Enhanced Return Potential: By leveraging forward contracts, venture capitalists can potentially enhance their returns by capitalizing on anticipated growth in startup valuations while protecting against downside risks.
  • Long-Term Investment Planning: Forward contracts support long-term investment planning by providing VCs with a structured approach to managing their investments across different stages of a startup’s lifecycle—from early-stage financing to eventual exit strategies.

Practical Considerations and Risks

While Security Forward Agreements offer numerous benefits, they also come with inherent risks and considerations:

  • Counterparty Risk: There is always a risk that the counterparty may default on its obligations under the forward contract, leading to financial losses or legal disputes.
  • Market Risk: If market conditions deviate significantly from expectations, the benefits of hedging through forward contracts may be diminished, and parties could incur opportunity costs.
  • Regulatory Considerations: Forward contracts are subject to regulatory oversight, and changes in regulatory requirements or interpretations could impact their use and effectiveness.
  • Cost Considerations: Depending on market conditions and the specific terms of the contract, entering into forward agreements may involve costs such as margin requirements or transaction fees.


Security Forward Agreements represent a powerful tool in the arsenal of financial instruments available to venture capital firms and institutional investors. By allowing parties to hedge against price fluctuations, manage risk, and strategically plan their investments, these contracts facilitate smoother and more efficient operations in both stable and volatile market conditions.

In the dynamic and competitive world of venture capital, where uncertainty and opportunity coexist, forward contracts provide a structured approach to navigating risks while pursuing investment opportunities with confidence. As the financial landscape evolves, understanding and effectively utilizing Security Forward Agreements will continue to be essential for achieving optimal portfolio performance and sustaining growth in the venture capital sector.


  1. Hull, John C. Options, Futures, and Other Derivatives. 10th ed., Pearson, 2017.
  2. Chance, Don M., and Roberts Brooks. Introduction to Derivatives and Risk Management. 10th ed., Cengage Learning, 2015.
  3. Lerner, Joshua. “Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn.” Journal of Economic Perspectives, vol. 23, no. 3, 2009, pp. 3-23. JSTOR,
  4. Gompers, Paul, and Josh Lerner. The Venture Capital Cycle. MIT Press, 2004.
  5. Securities and Exchange Commission. “Investor Bulletin: An Introduction to Options.” U.S. Securities and Exchange Commission,
  6. Financial Industry Regulatory Authority. “Understanding Options Trading.” FINRA,

These references provide foundational knowledge and scholarly insights into derivative contracts, venture capital finance, and the broader financial markets, enriching our understanding of Security Forward Agreements and their applications.

VCC – Red Flags for Private Issuers – How to Identify a Scammer

Venture Capital Cross – 6/2/2024 — It takes all kinds to make the world go round, they say.  We encounter all of the above being in the financial services business.  The reason we like late stage secondaries as our legacy go to market is because of the credibility of the assets, they are companies that have $1 Billion + valuations and have already proven themselves to the market.  However, the real value is in catching the next big thing at an early stage, and herein lies the dilemma.  Investors are not sure which one is going to be the next big thing (i.e. Google, Amazon) and which one is going to totally fail.  And to be fair to issuers, they don’t know too.

We have compiled a short list of ‘red flags’ to look for, these are not by themselves an indication of a bad deal, but overall, these are things you want to be aware of when evaluating earlier stage opportunities.

Red Flags – signs of a bad deal

1. The principal refuses to show any due diligence
2. Insists on meeting in person
3. Does not have a public profile, media following
4. Does not have a lawyer
5. High Returns “Too good to be true”
6. Has lots of stories, but lacks documentation to back them up
7. Is not registered (this by itself isn’t proof that it’s a scam, but many legitimate fund managers and investment bankers ARE registered)
8. Uses words like “Arbitrage” and “Bank Guarantee” and “Insurance”
9. Explains the investment has “No Risk” (Any investment has risk, even Arbitrage has risk)
10. Is private, confidential person
11. Looking for in person referrals
12. Signs of time deadline / hurry
13. Operates from a dark jurisdiction i.e. Seychelles, Argentina, etc.
14. Uses big names “I got into this because of Bill Gates”

Signs of a Scammer

See the video analysis

Checkout our Udemy course on Venture Capital:

Venture Capital, Private Equity, Private Markets, Pre IPO

Uncover the Secrets of Antarctica film project with Brad Olsen

Uncover the secrets in Antarctica with Brad Olsen

Brad Olsen is raising capital for an expensive but valuable expedition to Antarctica to uncover never before seen sites.  Various permissions have been authorized for travel to these locations, for those who are skeptical.  Some of these sites have been visited by hikers but never explored deeply with a film crew.  Brad is not planning on going to any unauthorized areas.

For more information on the project including a deck, login to Venture Capital Cross and navigate to this page: (registration required – for Accredited Investors only)


The value of intermediaries in Private Markets and how to choose one

Venture Capital Cross — 5/24/2024 —  The masses are starting to get exposed to Private Markets, with sites like offering a free data rich platform for users.  However, most of these new users are not familiar with market mechanics and can often fall into common traps, we want to elaborate here in a short article.  Private Markets are exciting but also risky, as it tends to  be a one-sided market where there are all buyers or all sellers.  Many investors who made investments during the 2020- 2021 peak are still underwater in their investments.

The value of intermediaries

Since shares in private companies are not traded on an exchange, intermediaries provide a lot of value including but not limited to:

  • Price discovery
  • Counterparty identification
  • Settlement
  • Recordkeeping

That may not sound like much, but imagine your situation if you are an employee of a Unicorn and have shares to sell, you don’t know who to sell them to, or how to settle the transaction?  Registered Representatives of Broker-Dealers are specialized in this type of transaction and follow FINRA guidelines for transacting in private companies.  Secondary market transactions are a mix of investment-banking and trading, it’s not a Private Placement as the seller is getting the proceeds, not the issuer.  In a primary financing round, the company gets the funds raised – in a secondary market transaction, the seller of the shares gets funds raised.

Buyers and sellers don’t always agree on price, and this can lead to friction.  Cultural differences and other factors, not forgetting big Egos and busy schedules, can cause unnecessary friction between buyers and sellers.  This is absorbed by the brokers – blame the broker!

Counterparties should have as limited contact as possible.  Good brokers prepare documents, remind both sides about timelines, deadlines, or other action items, and keep good records.  KYC checks, ECP verifications for forwards, accredited investor checks, and other important compliance items are routine for a broker-dealer but not for most investors.  In many cases, using a broker to negotiate a price on your behalf can result in a net better price including the broker’s fee.  That’s because they see the market and have specific access to liquidity networks, beyond the obvious public retail sites.

But the secret of getting the most out of your broker is finding one you like and being exclusive to them, here’s why.

The virtue of being quiet

Imagine you want to buy shares in Groq, and you work with 10 brokers.  You want to invest $1 Million in the company, and you give that indication to those 10 brokers, thinking that you will get a better price.  Consumers have this ingrained into their behavior patterns, when you shop a price over a large number of stores, you can find the best possible price.  But with private markets, over shopping can change the price, typically not in your favor – here’s how.

Your 10 brokers may be speaking to the same single potential seller.  That seller is now approached by 10 brokers with a $1m indication not knowing it’s the same buyer.  To make this even worse, some brokers will outsource that to other brokers, thus creating a multiplication effect, where 10 brokers talk to another 20 brokers who then can speak to another 40 brokers and so on, each representing the same order.  When buyers are rare, such as during market downturns, this effect can be multiplied.

When the single seller in the market sees the $10m – $40m in demand, he may raise the price, he may pull the offer altogether.  Whatever is his response, he’s probably not going to lower the price, which is what the buyer wants.  A noisy broker can literally ruin transactions, create negative price slippage, and have other deleterious effects (i.e. time wasting).  There’s no upside.  Private markets are dark and anonymous, so intermediaries need to be careful how they approach potential counterparties.  There are many other examples where discretion is required, consider this:

A buyer on the cap table of Company XYZ wants to purchase more shares in the secondary market.  If that order is given to a broker who doesn’t know the name of the counterparty, how do they know not to approach the buyer, and ask them if they are a seller?  There is a solution to this known as reverse/blind solicitation, where the broker doing the job actually doesn’t know the name of the buyer.  They rely on their team to verify the buyer, but they actually don’t know the name.  If they by chance reach out to the buyer, and ask them if they are a seller, no harm is done.

Many counterparties in the secondary market do not want the market to know if they are a buyer or a seller, not for reasons of confidentiality, but because they are afraid it may spook the market, or have unnecessary positive consequences, making their price higher.  In either direction, there’s a process of information disclosure that is managed by the issuer or the brokers.  After a successful primary financing round, a press release is typically issued naming the lead investor and other significant investors.

There are a number of good brokers out there, but far more ‘toxic’ brokers that will kill the deal and/or overcharge on fees.  It’s not difficult to sort the good from the bad, just ask around, read reviews, do your research.  Just like you do research for an investment opportunity, do your research on an intermediary.  Once you find someone you like, who you trust and feel good energy from – stick with them!  We pride ourselves in quality, not quantity – in ethics, not size of profits.  We aren’t saying that we are the only good broker out there, we are leaders in the “Ethical Broker” movement, which is part of a larger movement on Alt- Wall St. which is where there is a win-win created in our transactions.  The reason we focus on late stage secondaries is because of the high quality of the companies.  Sellers are either employees getting a liquidity check to buy a house, or an early investor realizing a good Nx return and sending their LPs a check.  Buyers, or investors, are getting access to companies that typically outperform public markets, when looking from a Macro perspective.

How to choose one

Brokers are not hard to find, but how to find an objective one?  On the surface, an independent agent is the least likely to have a conflict.  A broker that represents and exclusive product, or platform, has an obvious conflict they will pitch their deals ahead of others.  Venture Capital Cross has an any and all policy meaning we want to find the best terms, not from a certain channel nor do we have proprietary products.  There are many independents out there, with a similar model – and we are suggesting to trust your judgement.  When meeting new people, are they givers or takers?  Or in other words, are they asking you to do something, or they are offering to do something for you?  Are they registered with FINRA and a member firm?  What is their experience, track record, do they have any negative disclosures or other information that might cause pause?  There are a number of factors you should consider when selecting a broker including:

  • Expertise on the market you are interested in (A broker familiar with Bytedance may be different than one with experience with Anduril, for example).
  • Positive feedback based on research you do and reviews
  • Positive / clean FINRA broker check

Venture Capital Cross is a cloud-portal building the macro paradigm of Private Markets with a 100 year vision.

The SpaceX Effect – Companies founded by SpaceX Alumni

From Jeff Burke and Michael Madrid:

Note to readers: This is my first co-authored piece. Michael Madrid and I bonded after the Varda Space piece ~1.5 years ago. Since then, we have wanted to write together. There are a few things to know about this piece:

This is just part one. We completed a deep-dive on SpaceX culture (similar to my Sutter Hill Ventures piece) that can be found here.

Part Two: The Culture of SpaceX

This piece has been a work in progress for months. We have spoken to many SpaceX’ers in the process, and we feel good about a lot of the content you will see! Enjoy!

The scale of Elon Musk

Elon Musk is one of the most captivating people on the planet. Not only is he the richest man in the world, but he captivates millions daily as a master meme lord. While SpaceX and Tesla are well documented, Musk’s impact on US technology extends far beyond that. At a time of offshoring manufacturing, slowing public institutions, and large scale building demise, Musk has built two massive hardware companies. And in the process, he has trained and inspired an entire generation of builders.

For now, put aside any perspective you may have on politics, tax policy, and Musk’s personal life. Since moving to the United States ~30 years ago, Elon Musk has been a founding part of seven main companies: Zip2 (sold), PayPal ( merged), SpaceX, Tesla, OpenAI, Neuralink, and The Boring Company.

Exhibit 1: Total Value Created by Elon Musk Companies

These companies have generated +$1T in value, +$80B in annual revenue, and +135,000 jobs…

The numbers alone are astounding, but the list is actually even more impressive than it might seem. Each one of these companies fully disrupted or innovated in a space:

  • PayPal —> Accelerated Fintech & disrupted traditional payments
  • SpaceX —> Created the commercial space launch market
  • Tesla —> Made electric cars cool & a preferable choice
  • OpenAI —> Pushing the bounds of AI with models like GPT-3

Today, we want to focus primarily on SpaceX. (The Tesla story requires its own piece.) SpaceX drove innovation in a space (get it?) that people thought was fundamentally impossible. The industry had dramatically slowed. The excitement of landing on the moon was decades past. The level of regulation was, and remains, super high. Reigniting (get it again?) the space industry was going to be a totally different ball-game than anything Elon Musk (or most others) had done to date.

Exhibit 2: Space launches per year

And yet, if you look at launches per year, SpaceX has accelerated scale over the past few years. Prior to SpaceX, the industry was largely stagnant from 2005-2017. I would argue that SpaceX’s scaling (and success) in 2014-2017 finally turned heads. Since then, the number of private space companies, as well as investment, has dramatically increased.

Of course, Musk is just one person. Along the way, thousands of builders joined him. That’s the impact that few have spoken about.

Exhibit 3: Manufacturing output and employment

The US has increased real manufacturing output while reducing the total number of jobs. This is primarily a function of step-changes in technology. On the whole, however, manufacturing has been heavily deemphasized in our culture. Tech has increased. Jobs have been offshored.

But when you consider recent geopolitical issues, building big, amazing things in the US is imperative. For the past 15 years, Musk has been training thousands of people to build hardware at MASSIVE scale… and fast. As a result, not only has SpaceX succeeded, but those builders have gone on to continue building. The ripple effect is real. We call it the SpaceX effect.

The SpaceX Effect | Companies founded by SpaceX Alumni

Exhibit 4: SpaceX Alumni companies (Credit to the Tesla / SpaceX Alumni Map for the list of companies)

Ultimately, the growth of SpaceX has become fairly obvious. Constant launches. Paired landings. Passenger spaceflights. All of this tweeted through Elon Musk’s channels, with the entire world following. And while this is all amazing and something we should be thankful for, most people have yet to see the former SpaceX employees now building new companies. Within years, there have been tens of sizable companies founded that are building real, critical things.

These founders are not optimizing ad clicks or emojis! They are building companies that are fighting for visions which will fundamentally change the world.

Exhibit 5: 12 companies founded by SpaceX alumni

While we cannot walk through all ~60 of the companies, we can give a sample! In Exhibit 5, we have listed just 12 companies that we find fascinating. Most of the companies are:

  • Relatively early stage
  • Raised significant money (+$500M in total)
  • Building innovative solutions for large scale problems, including nuclear reactors, freight trains, hypersonic reusable engines, and more

Companies of this scale take years (maybe decades) to build. Right now, it may not be apparent to most, but SpaceX has massively altered the trajectory of US large-scale hardware innovation, and the positive impacts of that will be showing for years to come.

The companies

Ursa Major

Founded by SpaceX engineer Joe LaurientiUrsa Major is becoming the market leader in propulsion. For years, space companies have been faced with a tough decision. Design my own engine in-house or purchase Russian-made RD-series engines? The former is very expensive, time-consuming, and inefficient. The latter is outdated and has geopolitical implications. The Ursa Major Hadley, Ripley, and Arroway engines are market-leading, ubiquitous engines. For more on Ursa Major, read my previous piece.

Reliable Robotics

Aircraft that fly themselves. By making autonomous, commercial aircraft, Reliable Robotics can increase everyone’s access to air transportation. Reliable Robotics is creating the airline of the future. SpaceX’ers Robert Rose and Juerg Frefel are the founders of Reliable Robotics.

First Resonance

The surge in large-scale manufacturing is exciting… but complex! As this trend continues, companies will need to better understand their systems. First Resonance is building the operating system for manufacturing. Eliminate data capture. Understand your processes. Operate efficiently. SpaceX’er Karan Talati is the founder & CEO.

Varda Space

SpaceX and many others are building machinery on earth to be used in space. But what if we made things in space that we can use on earth? That’s what Varda Space is doing, with microgravity manufacturing. High quality materials (e.g., pharmaceuticals, fiber optics) can be fabricated to higher specifications if the process is done without influence from Earth’s gravity. Varda Space will be the logistics supplier to carry out these manufacturing processes, and was co-founded by SpaceX’er Will Bruey. For more on Varda, read my previous piece on them.

Epsilon 3

After more then 10 years at SpaceX, Epsilon3 co-founder and CEO, Laura Crabtree, noticed something that had not existed a decade prior when she started at Elon’s company: an expanding startup ecosystem in the space industry. As a result, Crabtree founded Epsilon3 to help such companies reduce risk and increase efficiency by migrating spacecraft testing and ops procedures from static documents, spreadsheets, wikis, and paper checklists to digital alternatives based on a modern software platform.


Relativity is building the first autonomous rocket factory. By “disrupting 60 years of aerospace”, Relativity predicts they can be more reliable (100x fewer parts), better speed (10x faster production time), more flexible (no fixed tooling), and win with optimization (compounding iteration quality). At $1.3B, Relativity is the highest funded company of the group. Co-founder Jordan Noone worked at SpaceX in 2014 and 2015.

Xona Space Systems

GPS is a critical part of our infrastructure, from payment processing to driving cars to syncing clocks. But the painful truth is that GPS is vulnerable… and beyond current risks, the exciting applications of the future demand more and better position, navigation, and timing (PNT) support. Enter Xona Space Systems, which is building a precision LEO PNT constellation called Pulsar that offers a more secure, robust, and accurate alternative to legacy systems. The use cases are many, and co-founder & CEO Brian Manning is leading the charge.

Radiant Nuclear

Nuclear energy is our most scalable green source of energy, yet it is not universal. Reactors are huge projects, often mired in bureaucratic debates at the state or municipality level. Radiant is changing that with portable nuclear microreactors. Instead of a diesel generator, people could use Kaleidos. This provides a green alternative to fossil fuels that is both sustainable, scalable, and flexible. Founder Doug Bernauer is a former SpaceX engineer.

Phantom Space Corporation

SpaceX, Varda Space, and many more are proving the economic potential of space. But getting to space is expensive! SpaceX has done wonders lowering launch costs, but that is just the start. Phantom Space is a SpaceX alternative that is using mass manufacturing to drive down the costs of satellite builds and launches. This will lower the barrier to entry in space, creating more businesses and market opportunities. Founder Jim Cantrell was the first VP of Business Development at SpaceX back in 2001.

Impulse Space

Building a rocket. Creating the payload. Launching it to space. It is all very complex, and that may seem like the hard part (maybe it is)… but the job is not quite done! What do you do with it once it gets to space? Impulse Space is building orbital maneuvering vehicles that are focused on last-mile delivery. Think about your Doordash driver… just ergh…. in space! Jokes aside, this is a critical need in the industry. So much so that founder Tom Mueller left SpaceX after 17 years to pursue it!

Astro Forge

Asteroids consist of a variety of raw materials, many of which we actively use on earth (ex., gold, cobalt, iron). Resource depletion on earth is a concern for many. Astro Forge is working on a cost-effective and scalable solution for asteroid mining. This would give us the opportunity to expand our access to resources, as well as reduce on-earth mining and the downstream effects that has. Founder and CTO Jose Acain spent years at SpaceX as an aviation integration engineer.

Parallel Systems

Freight trains are a critical part of American logistics. The trains, however, run on fossil fuels. Parallel Systems is decarbonizing freight by building a cleaner, automated rail future. Long-term, their solutions will reduce the carbon footprint of rail, but they will also allow more of the $700B trucking industry to convert to decarbonized freight! SpaceX’er Matt Soule spent 13 years at SpaceX prior to founding Parallel Systems.


These twelve companies are clearly just the start. There are many more SpaceX alumni companies already, and we believe there are certainly many more to come. We will release Part II in ~2 weeks, and in that piece, we will do a full breakdown of how and why. How does SpaceX build and maintain such a high-performance culture? Why does this lead to so many entrepreneurial alumni? More to come!

What founders and reps can do to limit liability when raising capital

Founders need capital to grow, and registered reps often help them get there – but it’s not only about the capital.  If you search “Issuer Liability” most of the results will talk about the regulations.  When you raise money from someone else (not friends and family) you are selling a security, which is a regulated activity.  When you take an investors money there is liability, they are expecting something in return.  Many founders ask what they can do to protect themselves from investor lawsuits, so we wanted to provide a short guide.  We are not lawyers and this is not legal advice, this is information about the market in general for education purposes.  Founders should always seek guidance from a lawyer and if you are planning on raising capital with or without a broker-dealer you should probably have an attorney who you feel comfortable with on retainer.

  1. Follow the rules

This is pretty straightforward, and if you are working with a registered rep of a broker-dealer they will ensure your offering ticks all the right boxes.  Broker dealers are regulated by FINRA and their job is to understand and implement the rules.

  1. Get a lawyer

Lawyers are like Doctors, you don’t need them when you’re healthy, you need them when you’re sick or if you just got run over by a bus (in that example you’ll need both).  If you’re raising capital as your business grows you’ll need a lawyer to create documents and to provide legal advice for a range of issues well beyond your offering.

  1. Disclose, disclose, disclose

One of the biggest drivers of investor lawsuits is the failure to disclose material facts.  If you disclose everything, it will greatly reduce the risk of getting sued.  Investors understand that there are risks with private investing, they are taking the risk and will be rewarded if it pays off and the project works.  For example, if the company has a loan that needs to be paid off and you fail to disclose that, investors would be very unhappy about that (and so would the regulators).  Most of the regulations center around disclosure, they don’t evaluate the quality of an individual offering or sector – when you file an SEC registration statement, the SEC will verify the format, and that you have addressed all the required points, they will never evaluate the quality of the offering or tell you if it’s a good idea or not.  What they do require is that all material facts are disclosed, including the backgrounds of the principals, financials of the company (if any), audits, reports, articles, business plans, patents or other intellectual property, etc.  The reason for this is simple, investors can only make informed decisions when they have all the facts.

  1. Target sophisticated investors

This is more about strategy; if you target investors who have experience in early stage companies, they are going to be in a better position to make a decision, and may even provide valuable feedback based on their experiences in other deals.  If you are dealing with someone who has never invested in a private offering before, that’s probably not your best investor.

  1. Explain to investors the Use of Proceeds well

This is actually the most important requirement when doing a raise with a FINRA BD; the reason is simple.  Investors want to know where their money is going.  Things don’t always work out, and investors may be receptive to that – where they get angry is if you do something outside the scope of your plan, or something they believe to be reckless.  If you explain that with $500,000 you’re going to do A,B,C, – and then you do it, and it doesn’t work out as anticipated, there’s a much lower chance of having a problem with investors vs. a situation where you went far off the business plan and invested in something not on the Use of Proceeds list.  Founders have multiple roles with investors, they are fiduciaries of the shareholders, and managers of the business.  They have an obligation to the shareholders to maximize their value.  As an executive of the business, their job is to ensure that they execute the business plan to the best of their ability.

  1. Get an Umbrella insurance policy

If you have a house, a ranch, or other family assets, you should probably get an Umbrella insurance policy which covers those assets if you get sued.  The umbrella insurance is not specifically for people raising funds, it’s for general situations like if a stranger trespasses on your property and breaks their leg and sues.  The insurance agent can explain the benefits of it, but the idea is to provide some protection to your core assets in the case of lawsuits.

  1. The LLC or Corp provides basic protection

Incorporation when starting a company is key, it means that any lawsuit would be against the entity, not the individuals.  Having said that, a founder is in a unique position because they typically are the main shareholder, the executive, and the person responsible for the entity.  However, this is the most basic protection and the reason that entities are formed, the group of shareholders are stakeholders who share in the profits or the losses of the business together.

  1. Setup a Trust

If you have children, having a Trust is a great idea to pass assets however modest without dealing with Probate.  A Trust can provide other advantages of asset protection, but it does cost money to set it up.  This varies from state to state, but you should talk to a local attorney near where your primary residence is located.  A Trust should be local, it shouldn’t be in Delaware where most Corporations are registered.

  1. Keep in touch with investors

There’s a reason why publicly traded companies have quarterly investor calls.  Imagine the following scenario-  you have an investor who gave you a decent amount of money to start your company and you don’t hear from him for years.  Time goes by and your business grows, and then you face a huge problem from a competitor, and there is a loss.  You call to tell him that, he’s not going to be happy to listen to this.  But it’s always about the lack of info and attention, if you were calling them or if you write an investor letter at least quarterly, you probably wouldn’t be in such an awkward position.  Regular updates are a great way to keep investors informed, and if they are displeased with anything they’ll tell you that then.

  1. Under promise and over deliver

Getting caught in litigation is usually because an investor feels they were abused, lied to, tricked, or that they got an unfair deal.  If you under promise, and then over deliver – this vastly reduces the chance of someone feeling bad about the investment.  Investors don’t expect miracles and founders are not magicians, things happen, everyone knows that.  But if you provide great results, defined as better than what you originally told them, how could anyone have a problem with that?

This goes to the core of writing great terms, be conservative, be reasonable, explain the risks.  Many will say, that it will be ‘harder’ to raise money if your projections are conservative – exactly!  It’s a filtering process, you don’t want someone to EXPECT a huge return because then if you don’t do it, it will be a problem.  There was a FINRA case where a REIT promised 8%, delivered 5%, and got sued (we’re paraphrasing the terms for the sake of the example).  Or in other words, the 5% return was actually very good, but they hard sold and promised 8%, so it left some to feel that it was misleading.

11. When Speaking, Speak Honestly

According to one lawyer, what can prevent lawsuits is simple honesty.  Don’t exaggerate claims or speculate about the future, and certainly don’t speak about future potential as if it’s fact.  Avoid superlatives such as “Will” and instead use language like “May” because you really don’t know what will happen in the future.


This is not an exhaustive list, but it should provide the idea of how to risk mitigate the potential for getting sued, which is a real liability for founders, issuers, and reps.  There isn’t any language you can add to an investment contract that prevents an investor from suing (which is logical, if you think about it, because real scammers could use that language to shield themselves).

So consider taking the high ground, the ethical approach, disclose more than necessary, be above regulatory standards, don’t just meet the minimum requirements.

Announcing the 2024 Human Health 100

From SOSV:

Welcome to the third annual SOSV Human Health 100. The list features SOSV’s 100 most exciting companies in the health category, which for SOSV ranges very widely, from assistive robotics and remote care to therapeutics and diagnostics.

In the past two years (see the 2023 and 2022 lists), venture rounds and company valuations grew strongly, but in the past year funding has become much harder to secure and valuations are fragile at best. We asked founders in our recently concluded and very well attended VC-Founder Health Matchup (more on that below) what they thought of the funding environment: 71% reported that it was worse than prior years; no respondent reported it was better.

We see that trend in our Health 100. As in past years, about 2/3 of the companies are at the seed stage, 1/3 at Series A or more, and 2 have reached ‘Late stage’ (unicorns Opentrons and Formlabs). Compared to the strong numbers the Health 100 posted in the past two years, growth was modest. The Health 100’s aggregate valuation is $6.67 billion (+3% from $5.47B in 2023), and all told the Health 100 have raised $1.43 billion (+1% from $1.42B in 2023).

SOSV, which invests starting at pre-seed and continues through later stages, has invested $99 million (+3% from $96M in 2023) in the 100. Due to the slowdown in follow-on investing last year, SOSV’s investments were mostly in new companies entering our programs or raising seed rounds.

Progress of the Health 100 – 2022-2024

Total Valuation Total Raised SOSV Funding Countries Female Founders PhD Founders
2022 $5.65B $1.0B $73M 19 30% 62%
2023 $6.47B $1.42B $96M 17 30% 67%
2024 $6.67B $1.43B $99M 16 35% 70%

Note: this table is based on actual funding amounts.

This year’s list welcomes 16 newcomers, who are listed below. Individual companies on the Health 100 experience ups and downs due to new fundings, regulatory breakthroughs and commercial partnerships. Joining or leaving this list is not a reliable indicator of future outcomes!

The Health 100 Founders

As with the SOSV Climate Tech 100, the diversity and sophistication of our health companies and founders is striking.

  • 35% of the companies have at least one woman co-founder.
  • 16 countries are represented; topping the list are the US (64), the UK (9) and Canada (6), followed by France, Ireland and Singapore (3).
  • 70% of the startups have at least one PhD co-founder.

A total of 52 companies graduated from the bio-focused IndieBio while another 38 hail from hard-tech focused HAX, and five came from the SOSV Consortium.

SOSV is continually expanding its health portfolio by accepting pre-seed health startups into our HAX and IndieBio startup development programs with checks ranging from $250,000 to $500,000. As the companies progress, SOSV also participates in their series seed, A and later rounds. That helps account for our strong showing in PitchBook leaderboards for active investors in categories such as healthcare devices & supplies, women’s health, pharma and biotech.

The 16 New Health 100

All the new companies in the Health 100 are at the seed stage; 9 of them were founded in 2020 or later.

  • Afynia (Canada): The first diagnostic blood test for Endometriosis
  • Cell Bioengines (US): ‘Off-the-Shelf’ Cell Therapies to Cure Cancer.
  • DropGenie (Canada): Accelerating the pace of drug discovery through automated gene editing workflows
  • HelEx (US): Re-shaping gene editing drug design by leveraging nature’s own operating system- the epigenome,
  • Kinexcs (Singapore): AI-driven digital therapy platform & wearables empowering recovery and mobility
  • LightHearted AI (UK): AI-based diagnostics device offering faster, accurate, and affordable solutions for the detection of heart conditions.
  • MedIQ (Pakistan): Integrated virtual care platform providing on-demand healthcare at the point of need.
  • Neuroqore (US): Developing neuromodulation treatments for various neurobehavioral conditions using rTMS (Repetitive Transcranial Magnetic Stimulation)
  • Oli Technologies (US): Helping kidney disease patients see better outcomes at lower costs via portable dialysis devices.
  • OpenShelf (US): Provides flexible “vending machine”-like robots that manage inventory for thousands of unique contact lenses.
  • Portable Diagnostic Systems (US): Microfluidics-based drug testing platform for law enforcement.
  • Rizlab Health Diagnostics (US): A handheld device that allows clinicians to test patient white-blood cell counts in minutes.
  • TippingPoint (US): Attacking cancer with a platform that makes genome packaging states druggable.
  • Unlocked Labs (US): Probiotics with an enhanced ability to biodegrade toxins that are the root causes of serious chronic conditions.
  • ViAn Therapeutics (US): Ophthalmology pharma startup combating microvascular retinal diseases (AMD and DME) with a simple eye drop.
  • Vitarka Therapeutics (UK): Developing RNAi therapies and a non-viral delivery platform technology to activate the immune system and normalize tumor vasculature

The VC-Founder Health Tech Matchup

The health category may be little better than flat year-on-year, but SOSV’s second annual VC-Founder Health Tech Matchup, produced results consistent with a very vibrant category. There were 1092 participants (416 investors and 676 founders) for the free, online event, which took place over the past two weeks, and those folks took approximately 1,500 founder-investor meetings. Year-on-year, matchup registrations were up 52% and meetings up 134%. Some of that energy may derive from the wave of AI-based technologies moving through the health sector: 63% of founders reported that AI was now playing a significant role in their work.

The 2024 Human Health 100

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Google-backed Anthropic debuts its most powerful chatbot yet, as generative AI battle heats up

From CNBC:

  • Anthropic on Monday debuted Claude 3, a chatbot and suite of AI models that it calls its fastest and most powerful yet.
  • The company, founded by ex-OpenAI research executives, has backers including Google, Salesforce and Amazon, and closed five different funding deals over the past year, totaling about $7.3 billion.
  • The new chatbot has the ability to summarize up to about 200,000 words, or a lengthy book, compared to ChatGPT’s ability to summarize about 3,000. Anthropic is also allowing image and document uploads for the first time.

Anthropic on Monday debuted Claude 3, a suite of artificial intelligence models that it says are its fastest and most powerful yet. The new tools are called Claude 3 Opus, Sonnet and Haiku.

The company said the most capable of the new models, Claude 3 Opus, outperformed OpenAI’s GPT-4 and Google’s Gemini Ultra on industry benchmark tests, such as undergraduate level knowledge, graduate level reasoning and basic mathematics.

This is the first time Anthropic has offered multimodal support. Users can upload photos, charts, documents and other types of unstructured data for analysis and answers.

The other models, Sonnet and Haiku, are more compact and less expensive than Opus. Sonnet and Opus are available in 159 countries starting Monday, while Haiku will be coming soon, according to Anthropic. The company declined to specify how long it took to train Claude 3 or how much it cost, but it said companies like Airtable and Asana helped A/B test the models.

This time last year, Anthropic was seen as a promising generative AI startup founded by ex-OpenAI research executives. It had completed Series A and B funding rounds, but it had only rolled out the first version of its chatbot without any consumer access or major fanfare.

Twelve months later, it’s one of the hottest AI startups, with backers including Google, Salesforce and Amazon, and a product that directly competes with ChatGPT in both the enterprise and consumer worlds. Over the past year, the startup closed five different funding deals, totaling about $7.3 billion.

The generative AI field has exploded over the past year, with a record $29.1 billion invested across nearly 700 deals in 2023, a more than 260% increase in deal value from a year earlier, according to PitchBook. It’s become the buzziest phrase on corporate earnings calls quarter after quarter. Academics and ethicists have voiced significant concerns about the technology’s tendency to propagate bias, but even so, it’s quickly made its way into schools, online travel, the medical industry, online advertising and more.

Between 60 and 80 people worked on the core AI model, while between 120 and 150 people worked on its technical aspects, Anthropic co-founder Daniela Amodei told CNBC in an interview. For the AI model’s last iteration, a team of 30 to 35 people worked directly on it, with about 150 people total supporting it, Amodei told CNBC in July.

Anthropic said Claude 3 can summarize up to about 150,00 words, or a sizeable book (think: around the length range of “Moby Dick” or “Harry Potter and the Deathly Hallows”). Its previous version could only summarize 75,000 words. Users can input large data sets, and ask for summaries in the form of a memo, letter or story. ChatGPT, by contrast, can handle about 3,000 words.

Amodei also said Claude 3 has a better understanding of risk in responses than its previous version.

“In our quest to have a highly harmless model, Claude 2 would sometimes over-refuse,” Amodei told CNBC. “When somebody would kind of bump up against some of the spicier topics or the trust and safety guardrails, sometimes Claude 2 would trend a little bit conservative in responding to those questions.”

Claude 3 has a more nuanced understanding of prompts, according to Anthropic.

Multimodality, or adding options like photo and video capabilities to generative AI, whether uploading them yourself or creating them using an AI model, has quickly become one of the industry’s hottest use cases.

“The world is multimodal,” OpenAI COO Brad Lightcap told CNBC in November. “If you think about the way we as humans process the world and engage with the world, we see things, we hear things, we say things — the world is much bigger than text. So to us, it always felt incomplete for text and code to be the single modalities, the single interfaces that we could have to how powerful these models are and what they can do.”

But multimodality, and increasingly complex AI models, also lead to more potential risks. Google recently took its AI image generator, part of its Gemini chatbot, offline after users discovered historical inaccuracies and questionable responses, which have circulated widely on social media.

Anthropic’s Claude 3 does not generate images; instead, it only allows users to upload images and other documents for analysis.

“Of course no model is perfect, and I think that’s a very important thing to say upfront,” Amodei told CNBC. “We’ve tried very diligently to make these models the intersection of as capable and as safe as possible. Of course there are going to be places where the model still makes something up from time to time.”

Clarification: Anthropic clarified with CNBC that Claude 3 can summarize about 150,000 words, not 200,000.

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