Starting Up Right and Getting Funded

Starting Up Right and Getting Funded

Mick Bain – [email protected] Jason Kropp – [email protected]

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WilmerHale 1

Discussion Topics

Protecting IP Assets

Building the Team

Seeking Financing

Dealing with VCs

Working with Lawyers

© 2014 Wilmer Cutler Pickering Hale and Dorr LLP

WilmerHale 2

Discussion Topics


Building the Team

Seeking Financing

Dealing with VCs



WilmerHale 3


Who owns IP created prior to incorporation? Where did it come from?

Assignment agreements

Licenses

How do you make sure you own all your IP after incorporation?

In-licensing issues (universities)


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Building The Team

Standardized employment terms: At-will employment (offer letters)

Assignment of Inventions and NDA’s

Non-competition and non-solicitation agreements

Equity Vesting

When does acceleration of vesting make sense?

Advisors and Consultants

“Professional” Management


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Seeking Financing

Sources of capital Friends & Family

Angels

VC’s

Strategic Investors

Banks


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Seeking Financing

What are the goals in seed rounds? Seek sophisticated seed investors

– Who are “accredited investors”

– Who know angel investing and its risks

– networks

Seek standard (VC-friendly) terms and conditions

Speed

Minimize transaction costs

Minimize number of stockholders

Avoid future legal and other hurdles


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Seeking Financing

Cash loans Pros:

– Easy

– Low transaction costs

– No ownership dilution

Cons:

– It becomes due, usually within 12-24 months

– May not be viewed favorably by future investors


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Seeking Financing

Common Stock Pros:

– Easy


Cons:

– Valuation problems/Equity compensation problems

– Dilution

– Not an attractive investment


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Seeking Financing

Preferred Stock Pros:

– Less dilution than common stock

Cons:

– Need to set a valuation

– High transaction costs

– May give up too much control to a seed investor for too little money


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Seeking Financing

Convertible Debt Pros:

– Quick


– No current valuation

– Minimizes problems with VCs

– Only minimum control constraints

– Better than common stock for investors because it usually converts to preferred stock


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Seeking Financing

Convertible Debt Cons:

– Ultimately issuing more “real” preferred

– Often accompanied by an “equity kicker”

– Current trends include price “ceiling”


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Seeking Financing

VCs vs. Angels Size of Round

Potential Exit

Effect on future financing

Industry

Terms


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Dealing with VCs

Understand your needs

Define your strategy

Stick to your plan


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Bring them on early

Keep them in the loop

Manage the relationship

Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/code-of-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2014 Wilmer Cutler Pickering Hale and Dorr LLP


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Starting Up Right and Getting Funded