Starting Up Right and Getting Funded
Mick Bain – mick.bain@wilmerhale.com
Jason Kropp – jason.kropp@wilmerhale.com

Attorn...
Discussion Topics
Protecting IP Assets
Building the Team
Seeking Financing
Dealing with VCs
Working with Lawyers

© 2014 W...
Discussion Topics
Protecting IP Assets
Building the Team
Seeking Financing
Dealing with VCs
Working with Lawyers

© 2014 W...
Protecting IP Assets
Who owns IP created prior to incorporation?
 Where did it come from?
 Assignment agreements
 Licen...
Building The Team
Standardized employment terms:
 At-will employment (offer letters)
 Assignment of Inventions and NDA’s...
Seeking Financing
Sources of capital
 Friends & Family
 Angels
 VC’s
 Strategic Investors
 Banks

© 2014 Wilmer Cutle...
Seeking Financing
What are the goals in seed rounds?
 Seek sophisticated seed investors
– Who are “accredited investors”
...
Seeking Financing
Cash loans
 Pros:
– Easy
– Low transaction costs
– No ownership dilution

 Cons:
– It becomes due, usu...
Seeking Financing
Common Stock
 Pros:
– Easy
– Low transaction costs

 Cons:
– Valuation problems/Equity compensation pr...
Seeking Financing
Preferred Stock
 Pros:
– Less dilution than common stock

 Cons:
– Need to set a valuation
– High tran...
Seeking Financing
Convertible Debt
 Pros:
– Quick
– Low transaction costs
– No current valuation
– Minimizes problems wit...
Seeking Financing
Convertible Debt
 Cons:
– Ultimately issuing more “real” preferred
– Often accompanied by an “equity ki...
Seeking Financing
VCs vs. Angels
 Size of Round
 Potential Exit
 Effect on future financing
 Industry
 Terms

© 2014 ...
Dealing with VCs
Understand your needs
Define your strategy
Stick to your plan

© 2014 Wilmer Cutler Pickering Hale and Do...
Working with Lawyers
Bring them on early
Keep them in the loop
Manage the relationship

Wilmer Cutler Pickering Hale and D...
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Starting Up Right and Getting Funded

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Explores:
- Protecting IP Assets
- Building the Team
- Seeking Financing
- Dealing with VCs
- Working with Lawyers

Published in: Business, Economy & Finance
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Starting Up Right and Getting Funded

  1. 1. Starting Up Right and Getting Funded Mick Bain – mick.bain@wilmerhale.com Jason Kropp – jason.kropp@wilmerhale.com Attorney Advertising
  2. 2. 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 1
  3. 3. 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
  4. 4. Protecting IP Assets 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) © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 3
  5. 5. 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 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 4
  6. 6. Seeking Financing Sources of capital  Friends & Family  Angels  VC’s  Strategic Investors  Banks © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 5
  7. 7. 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 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 6
  8. 8. 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 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 7
  9. 9. Seeking Financing Common Stock  Pros: – Easy – Low transaction costs  Cons: – Valuation problems/Equity compensation problems – Dilution – Not an attractive investment © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 8
  10. 10. 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 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 9
  11. 11. Seeking Financing Convertible 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 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 10
  12. 12. Seeking Financing Convertible Debt  Cons: – Ultimately issuing more “real” preferred – Often accompanied by an “equity kicker” – Current trends include price “ceiling” © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 11
  13. 13. Seeking Financing VCs vs. Angels  Size of Round  Potential Exit  Effect on future financing  Industry  Terms © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 12
  14. 14. Dealing with VCs Understand your needs Define your strategy Stick to your plan © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 13
  15. 15. Working with Lawyers 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/codeof-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 © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 14

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