• Save
February 2011 - Business Law & Order - Richard Bruder
Upcoming SlideShare
Loading in...5
×
 

February 2011 - Business Law & Order - Richard Bruder

on

  • 925 views

Cash is the lifeblood of any business, especially early-stage, high-growth enterprises. We will discuss: The Capital Fundraising Plan (know how much you need to raise and when to raise it); Grant ...

Cash is the lifeblood of any business, especially early-stage, high-growth enterprises. We will discuss: The Capital Fundraising Plan (know how much you need to raise and when to raise it); Grant Funding (what could be better than money you don’t have to repay and doesn’t cost you equity); Securities Law Basics (how to avoid personally obligating yourself to give back every dime of investor money if things don’t go well); How to Structure Investor Funding (what’s the best way for you to take in investor money). And….of course, your questions!

Statistics

Views

Total Views
925
Views on SlideShare
925
Embed Views
0

Actions

Likes
0
Downloads
0
Comments
1

0 Embeds 0

No embeds

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

February 2011 - Business Law & Order - Richard Bruder February 2011 - Business Law & Order - Richard Bruder Presentation Transcript

  • Structuring the Investment Richard C. Bruder • [email_address] • www.elp-law.com Ann Arbor Spark 2011 Business Law and Order Series Financing I
  • The Scenario -start up company -excellent team of Founders -web-based home delivery grocery -Needs $100K for prototype + early marketing -Investor: a Founder of opentable.com
  • The Question – How to Structure? Two basic choices: -convertible debt -preferred stock [common stock/royalty agreement]
  • Convertible Debt – What is It?
  • Convertible Debt – What is It? -a loan by the investor -with interest (8-10%) -repayment date (1-3 years) -expectation: never repaid but converted to equity at next funding round -converted “at a discount” (15%-30%) -variation: “warrant coverage”
  • Convertible Debt – What is It? Example: one year later, web site built and some revenues! Investor #2 invests $500K at $1.00 per share Investor #1 gets to convert at $0.80 cents per share (20% discount), and gets 125,000 shares
  • Preferred Stock – What is It?
  • Preferred Stock – What is It? -equity in the company -a share in the profits/ sale proceeds -never needs to be “repaid” -Convertible into common equity -How much equity? – PRICING.
  • Key Difference – Pricing
  • Preferred Stock (First Round) Example: At first round , company has a “Pre-Money Value” of $500K. Investor invests $100K. “Post Money Value” is $600K. Investor gets $100K/$600K, or 1/6 th = 16.67%
  • Convertible Loan (First Round) Example: At first round , Investor invested $100K At second round (prototype + some revenue) Pre Money Value is $1.0M Investor gets to convert as if C ompany had a “Pre-Money Value” of $800K (and a Post Money Value of $900K). Investor gets $100K/$900K, or 11.11%
  • Key Difference – To Price or Not to Price
  • Pro and Con of Pricing the Deal
  • Pro and Con of Pricing the Deal -avoid confrontation (arguing over price) -avoid delay (arguing over price) -round isn’t large enough to establish value -no lead investor to take on pricing burden -must repay convertible loan -more “alignment” with preferred -Investor: why help grow the company – it just raises my conversion price -This deal is HOT! I want IN! -I took all the risk, for only a 15-30% discount
  • New and Improved! Convertible Debt With a Cap
  • New and Improved! Convertible Debt With a Cap “I will convert my loan at the next round Pre Money Value, not to exceed $700K.” Next Round has a “true” Pre Money Value of $1.0M. Investor converts at 100/800K, or 12.5%
  • Key Point: The Investor is More Important Than the Structure
  • Michigan’s New Investment Tax Credit
  • Michigan’s New Investment Tax Credit Invest between 1/1/11 and 1/1/13 Get a 25% Michigan tax credit (spread over 2 years – 5 years)
  • Michigan’s New Investment Tax Credit Available only to : Qualified Investors for Qualified Investments in Qualified Businesses
  • Michigan’s New Investment Tax Credit Qualified Investors -invest through an angel group or VC fund that is registered with the Michigan Strategic Fund -no relatives, board members or felons
  • Michigan’s New Investment Tax Credit Qualified Investments -at least $20K -can be equity OR debt -must stay in the deal for 3 years (unless a “legitimate” exit) -investor submits annual report
  • Michigan’s New Investment Tax Credit Qualified Business -seed or early stage (see MCL 125.2233) -incorporated and HQ in Mich -Majority of employees in Mich -Pre-Money Value less than $10M -less than 100 FTEs less than 5 years old (10 years if TTO) -no retail -no life science (unless covered under MSF Act sec 88a) -innovative with potential for high growth - seek Preliminary Assessment of Eligibility (Form SBITC-001)!
  •