Start-ups and Venture Capital
Investments ©
By Catharina Yoosun Min
Partner
Reed Smith LLP
Types of Start-ups
• Sole Proprietorship
• Partnerships
• Limited Liability Company
• Corporation
• Most choose Corporatio...
How to form a corporation
• File Articles or Certificate of Incorporation
• Bylaws
• Appoint directors
• Directors appoint...
Initial Funding
• Founders stock – simple and cheap since
low or no valuation
• Friends and Family – simple and cheap
sinc...
Securities Laws
• Need to comply with federal and state
laws where the investor resides
• Cannot sell stock to just anybod...
Employee Issues
• All employees are “at-will” and can be
terminated anytime. Cannot terminate based on
unlawful reasons (r...
Next Funding
• Convertible Debt
- Automatically converts to the next
financing of a certain amount
- Usually has warrants ...
Series A Preferred Round
• Need to create preferred stock with
preferences by filing a revised Articles of
Incorporation
•...
Rights of a shareholder
• Common Stock – residual rights after preferred stock
• Preferred Stock
– dividends
– liquidation...
Series B Preferred Round
• Will need consent from the board and the
holders of common stock and Series A preferred
stock
•...
Exit Options
• Licensing out of all material technology
• Initial Public Offering
• Mergers & Acquisitions
• Dissolution o...
IPO
• Usually have underwriters who are
investment banks
• IPO under the Securities Act of 1933 –
registration statement i...
M&A
• Stock vs. asset acquisition – depends on
many things, e.g. contingent liabilities
• Tax consideration
• Representati...
7 Procedural Issues:
1. Get the right local professionals and
partners early in the process (bankers,
lawyers, accountants...
2. LOI stage - obtain exclusivity,
binding/non-binding, confidentiality, build
in flexibility on the structure if needed
3. Do due diligence right and early
• What are we investing in and who owns it
• Any issues on change in control (IP,
cont...
4. Think ahead of post-investment and plan
ahead – capital needs, other
infrastructure.
• Bring the team who will be there...
5. Employee/Management team
• Employee retention - Who is important
and necessary to the business Severance
arrangements
•...
6. Foreign Corrupt Practices Act
• Bribes and illegal payoffs to government
officials
• US very aggressive – recent convic...
7. Attention to the local corporate
governance laws –
• Have board and shareholder meetings
• Danger of piercing the corpo...
Thank you.
Catharina Yoosun Min
Reed Smith LLP
Silicon Valley, California
CMin@ReedSmith.com
415-794-8314
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Catharina min : 스타트업 미국 진출 법률자문

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스파크랩스의 주최로 열린 이 세션에서는 실리콘밸리 지역에서 미국 및 국제 고객을 대상으로 다양한 법률 활동을 해온 카탈리나 민(Catharina Min)이 현지의 고용절차부터 법인 설립과 IPO 상장, 그리고 인수합병에 이르기까지 미국 진출 시 반드시 알아두어야할 내용들에 대해 설명하는 시간을 가졌다.

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Catharina min : 스타트업 미국 진출 법률자문

  1. 1. Start-ups and Venture Capital Investments © By Catharina Yoosun Min Partner Reed Smith LLP
  2. 2. Types of Start-ups • Sole Proprietorship • Partnerships • Limited Liability Company • Corporation • Most choose Corporation in Delaware
  3. 3. How to form a corporation • File Articles or Certificate of Incorporation • Bylaws • Appoint directors • Directors appoint officers, sell initial stock, fix fiscal year, etc. • Obtain Employer ID Number from the IRS • Open a bank account
  4. 4. Initial Funding • Founders stock – simple and cheap since low or no valuation • Friends and Family – simple and cheap since low valuation. Usually a bit higher than founders stock
  5. 5. Securities Laws • Need to comply with federal and state laws where the investor resides • Cannot sell stock to just anybody • Can usually only sell to people who are related to the founders/officers or who have net assets of over $1 million
  6. 6. Employee Issues • All employees are “at-will” and can be terminated anytime. Cannot terminate based on unlawful reasons (race, nationality, sex, etc.) • All employees need to assign any and all IP to the company • All employees/consultants to sign Proprietary Rights and Confidentiality Agreement • Employment agreement not common but sometime for key officers
  7. 7. Next Funding • Convertible Debt - Automatically converts to the next financing of a certain amount - Usually has warrants attached to the convertible note (around 10-30% warrant coverage) - Friends and family or angel investors
  8. 8. Series A Preferred Round • Need to create preferred stock with preferences by filing a revised Articles of Incorporation • Need shareholder and board approval • Mainly angel investors or VC investors • Looking for exit in around 5 years so the terms support this timeframe
  9. 9. Rights of a shareholder • Common Stock – residual rights after preferred stock • Preferred Stock – dividends – liquidation – director seat – voting, veto and protective provisions – right to sell stock and co-sell with founders – right of first refusal when others sell – drag along rights – registration rights – timing of exit – Stock option pool
  10. 10. Series B Preferred Round • Will need consent from the board and the holders of common stock and Series A preferred stock • Rights of shareholders are either pari passu with Series A or in preference to Series A or a combination. • Down-round or up-round depending on the valuation of the company • If down-round, will trigger anti-dilution protection
  11. 11. Exit Options • Licensing out of all material technology • Initial Public Offering • Mergers & Acquisitions • Dissolution or bankruptcy
  12. 12. IPO • Usually have underwriters who are investment banks • IPO under the Securities Act of 1933 – registration statement is filed and declared effective • NASDAQ or NYSE; AIM and other jurisdictions too • Costly process and after IPO
  13. 13. M&A • Stock vs. asset acquisition – depends on many things, e.g. contingent liabilities • Tax consideration • Representations and warranties • Indemnification and escrow • Purchase price adjustment
  14. 14. 7 Procedural Issues: 1. Get the right local professionals and partners early in the process (bankers, lawyers, accountants, tax professionals)
  15. 15. 2. LOI stage - obtain exclusivity, binding/non-binding, confidentiality, build in flexibility on the structure if needed
  16. 16. 3. Do due diligence right and early • What are we investing in and who owns it • Any issues on change in control (IP, contracts, employees) • Following the ownership chain, especially on IP • Infringement, lawsuits, contingent liabilities
  17. 17. 4. Think ahead of post-investment and plan ahead – capital needs, other infrastructure. • Bring the team who will be there post closing and have them participate in the deal
  18. 18. 5. Employee/Management team • Employee retention - Who is important and necessary to the business Severance arrangements • Non-competition, trade secrets • Management team compensation – go with local market
  19. 19. 6. Foreign Corrupt Practices Act • Bribes and illegal payoffs to government officials • US very aggressive – recent conviction of 2 senior officers • UK Bribery Act of 2010 – encompasses more than government officials and no grease money
  20. 20. 7. Attention to the local corporate governance laws – • Have board and shareholder meetings • Danger of piercing the corporate veil and having shareholder liability
  21. 21. Thank you. Catharina Yoosun Min Reed Smith LLP Silicon Valley, California CMin@ReedSmith.com 415-794-8314
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