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Company Due Company Due DiligenceDiligence
AIEA March 27, 2008AIEA March 27, 2008
Sam ThackerBusiness Finance Solutions
512-697-950www.lesliethacker.com
Focus of Presentation
• Investors invest in companies.• The product/inventions/service
is key to the success of the company, but ultimately it is the company and the belief in management’s ability to succeed that matters most to an investor.
Company Design
Management Team
Product / Service
Customers
ShareholdersDirectors
TrustedAdvisors
CorporateGovernance
StrategicPartners
IntellectualProperty
AgreementsContracts
Building Your Company• Carefully consider implications
of various company structures
• Consider how company is likely be funded before setting up structure
• Find a good “board of advisors”
• Set-up corporate bylaws/organizational agreement
• Create company agreements
Management Team
• Domain Expertise• Business Acumen• Seasoning / Experience• Critical roles:
• CEO• CFO• CTO
Three Biggest Talents
• Strong ability to manage people
• Strong ability to manage money
• Strong ability to “sell”
Know All “Skeletons”• Know what personal credit
looks like for all shareholders with 20% or more ownership and who are operating the business
• Know about any criminal background issues of any officer, director, or key management personnel
Trusted Advisors
• Corporate Attorney• Patent Attorney• Banker• CPA• Insurance
Professional
Corporate Documents
• Articles of Incorporation / Organization• Certificate of Organization• Certificate of Good Standing• Company bylaws / organizational
agreement• Capitalization table• Minutes / resolutions
More About Company Bylaws
• Significantly more detailed than Articles of Inc. / Articles of Org
• Called a Partnership Agreement in a partnership and an Operating Agreement in an LLC
• Maintained as part of corporate records
• Sample: http://www.lectlaw.com/forms/f151.htm
Capitalization Table / Stock Certs
• If you have more than 1 shareholder, keep a formal “Cap Table” and issue stock certificates
• Read “Rookie mistake # 7”: http://www.tvausa.com/RookieMistakes/RM07.pdf
Company Agreements• Employment agreements• Buy / sell agreement• Consultant agreements• Lease / finance / other• Co-development agreements• Customer sales / P.O.s• Insurance policies• License agreements• Non-disclosure agreements• Shareholder subscription
agreements
Why Employment Agreements?
• Shows an investor key personnel are committed to venture
• Lets investor know how key personnel anticipate to be compensated
• Provides for “exit” provisions of a key personnel• Sample:
http://smallbusiness.findlaw.com/business-forms-contracts/business-forms-contracts-a-to-z/form1-29.html
Why Buy/Sell Agreement?
• Even the best of friends can have difficulties agreeing on business issues.
• Buy/Sell Agreement spells out how one partner can be bought out by the other in the event of “Irreconcilable differences”
Stock Subscription Agreements
• Warning – Know what you are doing
• Know the law – have back-up counsel
• Know what an accredited investor is
• Know how many non-accredited shareholders you may have
• Keep very detailed records
Intellectual Property
• If a patent is licensed to your business make sure you have the license agreement and understand the terms of the license
• Insure clear ownership / assignment
• Understand how patent assignments can be made
Revenue Visibility
• Purchase orders / letters of intent / distributor forecasts
• Keep in one place all evidence of interest in product
• Keep “pre-sales” pipeline
Maintaining Due Diligence Material
• Scan all documents put in PDF format
• Place in appropriate subdirectories
• Write simple HTML menu to connect all docs
• Password protect any PDF documents that contain sensitive material