wilmer hale at highland capital partners 7 10 07
DESCRIPTION
TRANSCRIPT
![Page 2: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/2.jpg)
2
Starting Your Company
- Protect your most important assets
Your IP
Your Team
Raising Capital
Form of Entity
![Page 3: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/3.jpg)
3
D – Your Company’s Most Important AssetsIntellectual 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
![Page 4: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/4.jpg)
4
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 FoundersBy: All Collaborators
All Future Employees
![Page 5: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/5.jpg)
5
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
![Page 6: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/6.jpg)
6
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
![Page 7: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/7.jpg)
7
D – Your Company’s Most Important AssetsThe 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
![Page 8: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/8.jpg)
8
Formation
2 Questions:
– What type of entity should you form?
– Where should you form it?
![Page 9: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/9.jpg)
9
FormationWhat Type of Entity Should You Create?
Partnership
Limited Liability Company
Subchapter S Corporation
Subchapter C Corporation
![Page 10: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/10.jpg)
10
FormationWhat 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
![Page 11: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/11.jpg)
11
FormationWhat 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
![Page 12: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/12.jpg)
12
FormationWhat 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
![Page 13: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/13.jpg)
13
FormationWhere Should You Incorporate?
Delaware
![Page 14: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/14.jpg)
14
Raising Capital
Sources:
– Friends and family
– Angels
– Strategic investors
– Government grants
– Venture capitalists
![Page 15: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/15.jpg)
15
Raising CapitalGoals 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
![Page 16: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/16.jpg)
16
Raising CapitalTypes of Seed Funding
Cash loan
Common stock
Preferred stock
Convertible debt
![Page 17: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/17.jpg)
17
Raising CapitalCash Loan
Pros:
– Easy
– Low transaction costs
– No ownership dilution
Cons:
– It becomes due, usually within 12-24 months
– Not favored by other/future investors
![Page 18: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/18.jpg)
18
Raising CapitalCommon Stock
Pros:
– Easy
– Low transaction costs
Cons:
– Valuation problems / Equity compensation problems
– Dilution
– Not an attractive investment
![Page 19: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/19.jpg)
19
Raising CapitalPreferred 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
![Page 20: Wilmer Hale At Highland Capital Partners 7 10 07](https://reader033.vdocuments.mx/reader033/viewer/2022061216/54b1b9334a7959882b8b467e/html5/thumbnails/20.jpg)
20
Raising CapitalConvertible 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”