Mark J. Graffagnini – Fundraising – Getting Your Legal Ducks in a Row for Capital

RAISING ANGEL & VENTURE CAPITAL: GETTING YOUR LEGAL DUCKS IN A ROW Mark J. Graffagnini Managing Partner Graffagnini+Associates, LLP New Orleans, LA

BACKGROUND
Graffagnini+Associates, LLP founded in January 2010
Focus on start-up company and venture capital investor representation over last several years
Formerly with Wilson Sonsini Goodrich & Rosati, PC in Palo Alto, CA
Formerly with Lemle & Kelleher, LLP in New Orleans, LA
Entrepreneur
www.maximumgen.com
www.cleantechlawandbusiness.com
www.nanolabweb.com

OVERVIEW
Early Stage Legal Issues

SO, NOW YOU’RE AN ENTREPRENEUR: CHOOSING THE RIGHT ENTITY Factor LLC C-Corp Taxation
Pass-through
Profits/Losses flow through to owners
Double-taxation:
Corp. pays tax on profits
Stockholders pay on dividends
Type of Investor
Not generally preferred for VCs:
Exit?
Distribution
Generally preferred for VCs
Limited partners
Certainty
Management/ Governance
Flexible
Single manager
Board of Managers
Member-managed
Less Flexible:
Board of Directors
Officers
Stockholders
Employee Incentive Plans More difficult “ working units”/profits interests Incentive Stock Options

NOW YOU’VE CHOSEN THE RIGHT ENTITY FOR YOU—FOUNDERS ISSUES

FOUNDERS’ ISSUES (CONT’D)

FOUNDERS’ ISSUES (CONT’D)
Clean IP Assignments
Applies to ALL employees, contractors, etc. and in various agreements
Full coverage is beyond scope of this presentation
Pay for your stock/interests!!
Should be able to document payment and issuance
“ Fully paid and non-assessable”
Mistakes:
Case of mistaken identity
Poor documentation can lead to disputes
Not keeping “cap table” clean

WHAT’S A “CAP TABLE”

One Portion of a Complex Cap Table

EMPLOYEE INCENTIVE PLANS

EMPLOYEE INCENTIVE PLANS (CONT’D)

RAISING SEED CAPITAL: THE “FAMILY & FRIENDS” ROUND

ANGEL & VENTURE CAPITAL—DEAL DOCUMENTS & ISSUES

SERIOUSLY?! WHAT’S THIS GONNA COST ME?!
Attorney’s fees vary widely
Negotiate with your attorney:
Value Billing/Start-up packages
Hourly rates and lawyers on your file
Investor’s counsel fees & caps

SERIOUSLY?! WHY BOTHER?! MY BUSINESS IS GOOD & I HAVE ENOUGH TO WORRY ABOUT!
Correcting mistakes is far more costly
Happy employees
Happy investors
Roadmaps
Credibility!!!

CONCLUSION
Entrepreneurship is a difficult road, and you have enough to worry about
Good documents and corporate practices give you peace of mind
View them as a roadmap for administration and successful business
Questions?

Mark J. Graffagnini – Fundraising – Getting Your Legal Ducks in a Row for Capital

by Chris Schultz on May 03, 2010

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Mark J. Graffagnini – Fundraising – Getting Your Legal Ducks in a Row for Capital — Presentation Transcript