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Financing OptionsScott M. Stanton
PartnerMorrison & Foerster LLP
Lab to Launch – San Diego
• Corporations and Limited Liability Companies– Both have limited liability for
owners/managers– Tax treatment can differ
• C Corporation’s earnings are taxed at corporate level
• S Corporation and LLC are pass-through entities
– Corporations are more common as investment vehicle in start-ups
• Delaware vs. California
Choosing the Best Entity for Your Venture
Lab to Launch – San Diego
• Corporations– Stockholders– Board of Directors– Officers
• Limited Liability Companies–Members–Managers–Managing Members– Officers
Control Issues
• Intellectual Property– Clearly defined assignment– Patents– Business plans– Licenses
• Capital – Adequacy and segregation to avoid piercing the corporate veil
• Keep the Stated Value Low
Contributions to the Venture
• Authorized vs. Issued• Common vs. Preferred• Founder Stock– Pricing– Vesting• Upfront and Term• Acceleration
– Repurchase rights
Equity on Formation
• Yourself• Friends & Family• Seed Capital• Bank Loans• Government
Grants• Business/Trade
Credit
• Angels• Crowd Funding• Equity Crowd
Funding (coming)
• VC’s• Strategics
Sources of Funds
• No General Solicitation (for now)• Accredited Investors• Unregistered Finders• Crowdfunding with equity
• Registered Portals• $1M per year• Investor limits
– Income/net worth tests– Max of $100k if investor income/net worth over
$1M
Legal Issues of Offering Securities
Valuation
Pre-Money Valuation $900,00090%+Investment Amount 100,00010%=Post-Money Valuation $1,000,000100%
Pre-Money Valuation $200,000 67%+Investment Amount 100,000 33%=Post-Money Valuation $300,000 100%
• Straight Debt• Convertible Debt• Preferred Stock• Warrants• Options
Types of Securities
• Board Representation• Approval Rights• Liquidation Preference• Anti-dilution• Financing Participation Rights
Financing Terms
Presented by Scott Stanton, Morrison & Foerster [email protected]
Thank you.
Lab to Launch – San Diego