In a market where it seems like anyone who sprinkles the magical AI fairy dust on their start-up immediately attracts a swarm of VC interest, it isn’t surprising that founders of promising AI start-ups have a lot of leverage with potential VC investors. This Goodwin memo says they aren’t afraid of using it when it comes to negotiating the economic and governance terms of these investments.
The memo notes that while there’s nothing new here, founders are seeking favorable terms in earlier rounds than in the past, and they’re also not content to settle for concessions on just one or two points. This excerpt discusses some of the governance terms that founders are negotiating for:
The core objective for founders in venture financing is to maintain operational control — over the CEO role, board composition, and overall voting. The governance mechanisms they use to maintain that control vary by deal, but the most commonly negotiated provisions include:
– Board composition and voting rights: founder-majority or founder-designated board configurations that give founders effective control over the board’s decisions, whether through a majority of seats or super-voting rights attached to founder-held seats. These protections don’t require continued service, so they survive a founder’s transition out of an operating role.
– Super-voting structures: typically, 10 votes per share on founder-held common stock, allowing founders to exert structural vetoes through voting power alongside any explicit protective provisions.
– Common stock protective provisions: founder veto rights — exercised as a stockholder rather than as a board member, which reduces fiduciary duty concerns — over M&A, future financings, material changes in company direction, executive hiring and firing, and other key governance controls. These provisions are often negotiated to be narrower in scope than what investors would typically receive as standard preferred stock protections, but their mere existence as common stock veto rights is atypical when viewed in historical context.
– Limits on investor protective provisions: the converse of the common stock protective provisions, investor protections are often scaled back or limited by explicit economic thresholds — for example, limiting the veto on an exit transaction to situations in which a transaction would return less than a defined multiple of invested capital, effectively removing the investor check on exits that generate meaningful returns.
Economic terms sought by founders include terms providing them with structured secondary liquidity opportunities, participation in investor secondaries, and multiple-round structures with valuation step-ups for a subsequent tranche baked into the initial deal documents.
In Premca Extra Income Fund v. Angle, (1st. Cir.; 6/26), the First Circuit Court of Appeals refused to dismiss securities fraud claims arising out of Amazon’s aborted acquisition of iRobot. What makes the case interesting is that the statements alleged to be false and misleading that the Court refused to dismiss involved statements of opinion concerning the likelihood of the deal obtaining necessary regulatory approvals.
Following the abandoned merger, the plaintiffs filed a class action lawsuit against iRobot, its CEO, and its CFO challenging various disclosures made in connection with the transaction. The district court dismissed the plaintiffs’ lawsuit for failing to state a claim. On appeal, the First Circuit upheld the district court’s decision with respect to all challenged disclosures except for those relating to statements concerning the likelihood of regulatory approval contained in an amended proxy statement filing.
Under the SCOTUS’s Omnicare decision, in order for a plaintiff to successfully allege that a statement of opinion is actionable under the securities laws, it must establish that the statement in question omits material facts about the issuer’s inquiry into, or knowledge about, the statement of opinion. In this case, the opinion disclosure challenged by the plaintiffs involved statements in amended proxy materials that the defendants “expect[ed] that all applicable regulatory approvals [would] be obtained” and that “the merger [would] not violate the antitrust or foreign investment laws.”
The Court concluded that iRobot’s failure to disclose the regulatory challenges that the deal was facing in the EU – including the EU’s rare decision to elevate its investigation of the transaction to “Phase II” – as well as Amazon’s unwillingness to comply with certain information requests, made these disclosures potentially misleading:
iRobot’s rosy prediction of regulatory success, which had not appeared in any public filing since the original proxy statement in September 2022, could reasonably be understood as reassurance to investors as it came on the heels of the EC’s Phase II announcement. But iRobot did not include information about Amazon’s refusal to provide information on the search engine, which was critical to the EC’s publicly expressed concerns. Including that information could be found to have “significantly altered the total mix of information” available to investors by undermining iRobot’s message of reassurance.
The Court also concluded that the plaintiffs had adequately alleged scienter with respect to these disclosures. In doing so, it pointed to allegations that iRobot was a declining company that depended on completion of the merger to secure its financial future, and that this supported an inference that the defendants were paying close attention to regulatory details and were unlikely to “merely neglect to provide the troubling information about the merger while expressing optimism about it.”
Yesterday, in Grower v. Trux, Inc. (Del. Ch.; 6/26), the Delaware Chancery Court addressed a minority stockholder’s challenges to Viking’s acquisition of a majority of the outstanding stock of Trux on the basis that the selling stockholders breached a right of first refusal and co-sale agreement. The plaintiff stockholder’s claims were dismissed with prejudice in 2023, but one of the selling stockholders had intervened seeking a declaratory judgment that the purchase was void under the terms of the ROFR, and, though he stipulated to the dismissal, he filed cross-claims for breach of contract.
The company’s amended certificate of incorporation provided that a “sale, transfer or other disposition, in a single transaction or series of related transactions, by the stockholders of the [Company] of a majority of the outstanding shares of capital stock of the [Company] (determined on an as-converted basis)” was a “Deemed Liquidation Event.” This is relevant because Viking was a minority stockholder when the amended certificate was approved, and the ROFR made certain exceptions and gave Viking certain rights in connection with a Deemed Liquidation Event.
The decision responds to the summary judgment motions filed by both Trux and Viking to the intervening selling stockholder’s cross-claims. Trux and Viking pointed to the ROFR’s exceptions for a Deemed Liquidation Event and argued that the ROFR was not breached. And even if it was, they argued that the selling stockholder released his claims in the purchase agreement. Vice Chancellor Fiorvanti found the defendants’ arguments persuasive:
Richard’s Cross-Claims rise or fall on the applicability of Section 2.4. Under Section 2.4(a), a Proposed Transfer that is “not made in compliance with the requirements of [the ROFR] Agreement shall be null and void ab initio.” According to Richard, his transfers of stock to Viking and those of the Selling Stockholders are void. As a consequence, he argues that the Seller’s Release in his Stock Purchase Agreement is unenforceable, and all equitable defenses are inapplicable. Richard goes so far as to contend that he could invoke his own breach of the ROFR Agreement—several years after the Transaction—as a basis to void his sale to Viking along with those of the other Selling Stockholders.
Richard’s Cross-Claims fail as a matter of law. First, the Transaction was a series of sales of Transfer Stock pursuant to a Deemed Liquidation Event. Under Section 3.2 of the ROFR Agreement, “the provisions of Section 2 shall not apply to the sale of any Transfer Stock . . . pursuant to a Deemed Liquidation Event.” Because Richard’s voidness theory relies on the application of Section 2.4(a), Section 3.2 forecloses his claim. Second, even if Section 3.2 did not foreclose Richard’s theory, the Defendants did not breach Section 2.5 or Section 2.1(b). Third, and finally, Richard released his claims when he executed the Stock Purchase Agreement.
VC Fiorvanti also agreed with the defendants that the selling stockholder released his claims when he executed the stock purchase agreement since it included a release of any and all claims “based on acts, events or omissions occurring on or prior to this Agreement” and “relating to the Seller’s ownership of the Shares.” Since the purchase wasn’t void, neither was his release of claims, and his claims regarding the ROFR “fall squarely within this category of released, ownership-related claims.”
Earlier this month, the Council of the EU adopted a new framework for screening foreign direct investments. The press release notes that these rules replace the existing FDI screening framework that’s been in place since 2020. It explains:
The revised regulation requires all member states to establish screening mechanisms covering a common minimum scope of sensitive sectors, technologies and infrastructure (such as dual-use items and military equipment, critical raw materials, artificial intelligence, energy, transport and digital infrastructure), including foreign investments made through EU-based subsidiaries, while maintaining sole national responsibility for screening decisions.
The regulation also improves cooperation between member states and the European Commission, increases transparency and consistency across national screening systems, and streamlines procedures for investors and public authorities. In addition, it introduces new tools to facilitate information exchange and prevent circumvention of the rules.
The regulation will be published in the official journal and enter into force 20 days after publication. The new rules will start applying 18 months after the entry into force of the regulation.
This Gibson Dunn alert shares some color on what this means for U.S. investors in Europe:
The reform lands amid a changing stance vis-à-vis U.S. investors and mounting European sensitivity around foreign influence over the digital infrastructure underpinning core governmental functions. A case in point: On May 25, 2026, the Dutch government prohibited U.S.-based Kyndryl’s acquisition of Solvinity, the cloud provider hosting the Netherlands’ digital identity platform for accessing government services – the Netherlands’ first FDI prohibition of a U.S. acquirer. The message is unambiguous: U.S. investments in Europe enjoy no safe harbor, and that message is now being reinforced in the new EU FDI Screening Regulation.
One theme that runs throughout the reform: The new Regulation provides a floor, not a ceiling – it harmonizes a minimum standard but allows Member States to go further. Therefore, significant divergence between national FDI regimes in Europe is expected to persist.
The alert describes the “good,” the “bad,” and the “not-so-pretty” aspects of the new framework, which it characterizes as a “mixed bag” for investors who value predictability. It also says:
As most of the new regime hinges on national implementation over the next 18 months, the practical contours, including the application of risk factors and the call-in power, will emerge only after this. Investors active in the covered sectors in the EU should map their filing footprint and closely monitor national implementation over the coming months.
Back in March, we shared that the Premerger Notification Office was accepting the old HSR Form again — after a US District Court vacated the new rules and the FTC’s motion for a stay pending appeal was denied by the Fifth Circuit. This Baker Botts alert shares that, in May, the FTC and DOJ filed an unopposed motion to hold the appeal challenging the new rules in abeyance through the end of the year. In support of their motion, the FTC and DOJ cited their request for public comment and noted that they are evaluating potential changes to HSR requirements in light of the comment file with the goal of publishing a notice of proposed rulemaking by year’s end. They also indicated that the Agencies would continue to accept HSR filings using the old form.
The alert highlights these practical implications for parties making HSR filings:
Pre-February 2025 HSR rules remain in effect. Filers should continue using the less burdensome pre-February 2025 form and associated documentary requirements unless further changes are implemented.
The Agencies are pursuing continued consideration of revisions rather than abandonment of reform. The motion indicates that the Agencies are continuing to evaluate potential revisions to the HSR reporting framework while the appeal remains pending.
Further rulemaking may occur. The Agencies continue to view the prior HSR framework as insufficient for modern merger review and are likely to pursue expanded disclosure requirements.
The Agencies are emphasizing reduced burdens on non-problematic transactions. Recent statements reflect an effort to balance more effective merger screening with reduced compliance burdens for transactions unlikely to raise competitive concerns.
Areas of continued regulatory focus include: nontraditional transaction structures (including acquihires, reverse acquihires, convertible securities, and certain non-exclusive intellectual property licensing arrangements); and the scope of investment and real estate exemptions.
The Agencies are also continuing to evaluate disclosure obligations relating to: sovereign wealth funds, CFIUS, and defense-sector disclosures; supplemental filing obligations for materially restructured transactions or late-stage remedies; and the use of AI tools in identifying and selecting documents for HSR submissions and in responding to Second Requests.
The CAQ’s SEC Regulations Committee meets periodically with the SEC Staff to discuss emerging financial reporting issues relating to SEC rules and regulations. Last month, on TheCorporateCounsel.net, Dave shared that the Regulations Committee had published highlights from its Spring 2026 meeting with the Staff. As Dave noted, these highlights always offer useful insights into the Staff’s thoughts on a wide range of financial reporting issues. The meeting addressed these two topics of interest to this audience (among others):
– Corporation Finance Interpretations 130.05 and filer status determination upon consummation of a de-SPAC transaction; and
– Filing interim financial information for private operating company when a reverse merger between two operating companies occurs after fiscal quarter end, but before Form 10-Q is due.
There was a fair amount of optimism about the prospects for Private Equity dealmaking heading into 2026, but according to Bain & Company’s “Private Equity Midyear Report,” so far the year hasn’t lived up to expectations . Here are some of the highlights:
– Coming into 2026, the buyout market had largely shaken off tariff concerns, and dealmaking was on the rise. But then three more shocks arrived in rapid succession: the AI-driven “SaaSpocalypse” in software, redemption stress in private credit, and the war in Iran with its attendant spike in oil prices.
– The reduction in dealmaking has been sharp and wide-ranging Amid the new bout of uncertainty, bid-ask spreads have widened, investment committees have pulled back, and exit momentum has stalled out. Select transactions continue to clear—and at high prices—but mostly those involving A-plus assets.
– Given the growing pressure to buy and sell companies, it wouldn’t take much to unlock a wave of new dealmaking in the year’s second half. But a truly sustained upturn in activity will likely depend on the market finding an equilibrium that lasts more than a quarter or two.
– Private equity has entered a much more difficult and competitive era—one defined by higher interest rates, stubbornly high asset prices, and less of the multiple expansion that powered so many deals in the past. Generating consistent outperformance in the years ahead is going to require ever sharper strategic clarity and the value-creation system to back it up. It will also mean accelerating distributions to limited partners (LPs) by taking practical steps to boost exit momentum.
– Exit activity in the first quarter had yet to hit its stride. Despite year-end optimism, the industry has made little progress toward easing the liquidity crunch that has slowed down the capital cycle for years now.
– As long as exits drag, fund-raising will, too. Although there were several headline-grabbing fund closings in early 2026, like KKR’s North America Fund XIV and Bain Capital’s Asia Fund VI, overall momentum remains uninspiring.
The report says that in this challenging environment, the sponsors that will come out ahead are those that emphasize operational improvement and prioritize the “winners” among their portfolio companies, exploit opportunities for AI-driven value creation, and focus on disciplined execution.
Earlier this month, President Trump signed an executive order focused on promoting AI development while also strengthening cybersecurity and national security protections for frontier AI models. This excerpt from a recent Thompson Hine memo highlights the issues raised by the executive order for M&A transactions:
For private equity sponsors and M&A buyers, the order has immediate and practical implications. Transactions involving AI developers, software companies, data-intensive platforms, cybersecurity providers, critical infrastructure vendors, and any business that relies on advanced AI models should now expect more focused diligence on model governance, data architecture, security controls, and regulatory exposure.
Buyers should assess whether a target’s models could meet future “covered frontier model” thresholds, based on factors such as compute capacity, deployment scale, integration with federal or critical infrastructure systems, and intended use cases. Even if a model does not currently qualify, the order sets in motion a classified benchmarking process that may reclassify systems as they evolve. This means diligence must account for both current and potential future regulatory categorization.
Data architecture and model training practices are now central to AI-related risk. Buyers should evaluate data provenance, licensing, and chain-of-custody for training data; whether data is properly segmented between customers, models, and internal use; and whether models are trained on public, proprietary, or third-party data with restrictive terms. These issues directly expose sellers and buyers to IP, trade secret, and unfair competition claims, and they are likely to be scrutinized in both regulatory and commercial diligence.
The memo says that the order’s emphasis on an AI cybersecurity clearinghouse and federal vulnerability scanning suggests heightened expectations regarding the target’s cybersecurity program, and buyer’s need to ask whether that program would satisfy diligence expectations from the government, government contractors, and regulated industries.
It also notes that, due to the order’s focus on unlawful AI data access, buyers need to closely examine agent design and permissions, identity and access management controls, and safeguards against automation that could cross into “unauthorized access” under criminal statues.
If you’re interested in the use of AI for proxy voting recommendations in contested elections, check out Meredith’s recent podcast with Kekst CNC’s Co-CEO Lyndsey Estin and the co-leader of the firm’s Investor Relations and Contested Situations Practice, Nick Capuano. Lyndsey and Nick joined Meredith to discuss Kekst’s recent analysis of how voting recommendations from LLMs compare to those from the major proxy advisory firms across nearly 50 proxy contests. Topics covered in this 24-minute podcast include:
– How Kekst Conducted their Study
– The Headline: LLM Recommendations Lean toward Activists
– Beyond the Headline: Digging into the Data
– How LLM Recommendations Differed from Each Other
– The Sources and Rationales that Most Persuaded the LLMs
– The Sources and Rationales that Held Less Sway with the LLMs
– What this Means for Company Communications in Proxy Contests
We’ve been cranking out podcasts lately and we have several more in the hopper that we expect to post during the next month. If you’re interested in sharing your insights on a topic that you think would likely be of interest to members of DealLawyers.com or our other sites, we’d love to hear from you. You can contact me at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
This WTW article notes that during the first quarter of 2026, 12 deals valued in excess of $10 billion closed, representing the highest quarterly number of “mega deals” WTW’s tracked since 2008. Furthermore, the first quarter saw 215 transactions above $100 million completed worldwide. That’s a 32% volume increase and represents the fourth consecutive quarterly rise in deals this size. WTW contends that these aren’t isolated data points, but indicators that the market has recalibrated, and identifies two factors driving the shift toward larger deals:
What is driving this resurgence? Our analysis reveals two converging forces reshaping the M&A landscape:
Balance sheet confidence returns. Corporate balance sheets have reached unprecedented strength levels. Organizations aren’t just spending money on new products, they are investing in new companies that will help them grow in the next ten years. The mega deals we’re tracking aren’t opportunistic; they’re deliberate moves by leadership teams with conviction about their strategic direction.
Operational scale as competitive advantage. In an environment where efficiency and scale increasingly determine market leadership, transformational deals offer a path to consolidate market positions and achieve the operational leverage that drives sustainable advantage. The mega deals closing today reflect a calculated bet that size and capability, when combined strategically, create defensible competitive moats.
WTW says that the most encouraging sign for dealmakers about the Q1 experience is that companies completing M&A transactions outperformed the market by 2.5% during the quarter. That’s a dramatic reversal from Q4 of 2025, where they underperformed the market by13.9%, and WTW believes that it demonstrates that markets are rewarding well-executed strategic deals.