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Wilmer Hale At Highland Capital Partners 7 10 07

Date post:11-Jan-2015
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  • 1. Starting Your Company John Chory 781-966-2001 [email_address] Mick Bain 781-966-2027 [email_address]
  • 2. Starting Your Company Protect your most important assets Raising Capital Form of Entity - Your IP Your Team
  • 3. D Your Companys Most Important Assets Intellectual Property
      • Question: Who owns IP created prior to incorporation?
        • You?
        • People who collaborated with you?
        • Former employers?
        • The Public?
      • Answer: Unclear. Potentially all of the above.
        • One thing is clear: The Company does not own it.
        • Yet
  • 4. D Your Companys Most Important Assets Intellectual Property
      • Question: How do you ensure that the companys intellectual property is owned by the company?
      • Answer:
        • Assignment of inventions agreements
        • Non-disclosure agreements
        • Licenses from third parties (e.g., universities)
    All Founders By: All Collaborators All Future Employees
  • 5. D Your Companys Most Important Assets The Team
        • Protect the team, not any single individual
        • How?
        • Sign standardized agreements covering
          • At-will employment offer letters
          • Vesting of equity
          • Ownership of inventions
          • Non-disclosure
  • 6. D Your Companys Most Important Assets The Team
      • The offer letter: Use a well crafted one and dont deviate
        • Employment is at will
        • Describe equity information in shares, not percentages
        • NDAs, non-competes and assignment of inventions
        • No violation/conflicts with former employer agreements
        • Immigration laws
  • 7. D Your Companys Most Important Assets The Team
      • Equity Agreements vesting of stock or options
      • Carefully plan for your use of equity among:
        • Founders
        • Employees
        • Investors
        • Plan for growth
        • Understand the dilutive impact of your uses of equity
  • 8. Formation
      • 2 Questions:
        • What type of entity should you form?
        • Where should you form it?
  • 9. Formation What Type of Entity Should You Create?
      • Partnership
      • Limited Liability Company
      • Subchapter S Corporation
      • Subchapter C Corporation
  • 10. Formation What Type of Entity Should You Create?
      • Partnership
        • Not an investor-favored form
        • Pass through tax treatment
        • Not all owners have limited liability
        • No limit on number or types of owners
      • Limited Liability Company
        • Not an investor-favored form
        • Pass through tax treatment
        • All owners have limited liability
        • No limit on number or type of owners
  • 11. Formation What Type of Entity Should You Create?
      • Subchapter S Corporation
        • Not an investor-favored form
        • Pass through tax treatment
        • All owners have limited liability
        • Limit on number and types of owners
        • Limit on classes of equity
      • Subchapter C Corporation
        • Investor-favored form
        • No pass through tax treatment
        • All owners have limited liability
        • No limit on number and type of owners
  • 12. Formation What Type of Entity Should You Create?
      • Become a C-Corp if you want to:
        • Obtain VC funding
        • Go public
        • Do a tax free M&A deal
        • Use equity to compensate employees
  • 13. Formation Where Should You Incorporate?
      • Delaware
  • 14. Raising Capital
      • Sources:
        • Friends and family
        • Angels
        • Strategic investors
        • Government grants
        • Venture capitalists
  • 15. Raising Capital Goals in Seed Rounds
      • Seek sophisticated seed investors
        • Who are accredited investors
        • Who know angel investing and its risks
        • Who can distinguish Seed investing from Venture investing
      • Seek standard (VC-friendly) terms and conditions
      • Speed
      • Minimize transaction costs
      • Minimize number of stockholders
      • Avoid future legal and other hurdles
  • 16. Raising Capital Types of Seed Funding
      • Cash loan
      • Common stock
      • Preferred stock
      • Convertible debt
  • 17. Raising Capital Cash Loan
      • Pros:
        • Easy
        • Low transaction costs
        • No ownership dilution
      • Cons:
        • It becomes due, usually within 12-24 months
        • Not favored by other/future investors
  • 18. Raising Capital Common Stock
      • Pros:
        • Easy
        • Low transaction costs
      • Cons:
        • Valuation problems / Equity compensation problems
        • Dilution
        • Not an attractive investment
  • 19. Raising Capital Preferred Stock
      • Pros:
        • Less dilution than common stock
      • Cons:
        • Need to set a valuation
        • High transaction costs
        • Gives up too much control to a seed investor for too little money
  • 20. Raising Capital Convertible Debt
      • Pros:
        • Quick
        • Low transaction costs
        • No current valuation
        • Minimizes problems with VCs
        • Only minimum control constraints
        • Better than common stock for investors because it usually converts to preferred stock
      • Cons:
        • Ultimately issuing more real preferred
        • Often accompanied by an equity kicker
of 20/20
Starting Your Company John Chory 781-966-2001 [email protected] Mick Bain 781-966-2027 [email protected]
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