Starting Up Right and Getting Funded
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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

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  • 1. Starting Up Right and Getting Funded Mick Bain – mick.bain@wilmerhale.com Jason Kropp – jason.kropp@wilmerhale.com Attorney Advertising
  • 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. 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. 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. 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. Seeking Financing Sources of capital  Friends & Family  Angels  VC’s  Strategic Investors  Banks © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 5
  • 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. 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. 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. 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. 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. 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. 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. Dealing with VCs Understand your needs Define your strategy Stick to your plan © 2014 Wilmer Cutler Pickering Hale and Dorr LLP WilmerHale 13
  • 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