Wilmer Hale At Highland Capital Partners 7 10 07

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Information about Wilmer Hale At Highland Capital Partners 7 10 07

Published on August 17, 2007

Author: mgaiss

Source: slideshare.net

Starting Your Company John Chory 781-966-2001 [email_address] Mick Bain 781-966-2027 [email_address]

Starting Your Company Protect your most important assets Raising Capital Form of Entity - Your IP Your Team

D – Your Company’s 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

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

D – Your Company’s Most Important Assets Intellectual Property Question: How do you ensure that the company’s 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

Question: How do you ensure that the company’s intellectual property is owned by the company?

Answer:

Assignment of inventions agreements

Non-disclosure agreements

Licenses from third parties (e.g., universities)

D – Your Company’s 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

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

D – Your Company’s Most Important Assets The Team The offer letter: Use a well crafted one and don’t 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

The offer letter: Use a well crafted one and don’t 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

D – Your Company’s 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

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

Formation 2 Questions: What type of entity should you form? Where should you form it?

2 Questions:

What type of entity should you form?

Where should you form it?

Formation What Type of Entity Should You Create? Partnership Limited Liability Company Subchapter S Corporation Subchapter C Corporation

Partnership

Limited Liability Company

Subchapter S Corporation

Subchapter C Corporation

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

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

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

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

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

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

Formation Where Should You Incorporate? Delaware

Delaware

Raising Capital Sources: Friends and family Angels Strategic investors Government grants Venture capitalists

Sources:

Friends and family

Angels

Strategic investors

Government grants

Venture capitalists

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

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

Raising Capital Types of Seed Funding Cash loan Common stock Preferred stock Convertible debt

Cash loan

Common stock

Preferred stock

Convertible debt

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

Pros:

Easy

Low transaction costs

No ownership dilution

Cons:

It becomes due, usually within 12-24 months

Not favored by other/future investors

Raising Capital Common Stock Pros: Easy Low transaction costs Cons: Valuation problems / Equity compensation problems Dilution Not an attractive investment

Pros:

Easy

Low transaction costs

Cons:

Valuation problems / Equity compensation problems

Dilution

Not an attractive investment

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

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

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”

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”

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