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

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

  1. 1. RAISING ANGEL & VENTURE CAPITAL: GETTING YOUR LEGAL DUCKS IN A ROW Mark J. Graffagnini Managing Partner Graffagnini+Associates, LLP New Orleans, LA
  2. 2. BACKGROUND <ul><li>Graffagnini+Associates, LLP founded in January 2010 </li></ul><ul><li>Focus on start-up company and venture capital investor representation over last several years </li></ul><ul><li>Formerly with Wilson Sonsini Goodrich & Rosati, PC in Palo Alto, CA </li></ul><ul><li>Formerly with Lemle & Kelleher, LLP in New Orleans, LA </li></ul><ul><li>Entrepreneur </li></ul><ul><ul><li>www.maximumgen.com </li></ul></ul><ul><ul><li>www.cleantechlawandbusiness.com </li></ul></ul><ul><ul><li>www.nanolabweb.com </li></ul></ul>
  3. 3. OVERVIEW <ul><ul><li>Early Stage Legal Issues </li></ul></ul>
  4. 4. SO, NOW YOU’RE AN ENTREPRENEUR: CHOOSING THE RIGHT ENTITY Factor LLC C-Corp Taxation <ul><li>Pass-through </li></ul><ul><li>Profits/Losses flow through to owners </li></ul><ul><li>Double-taxation: </li></ul><ul><li>Corp. pays tax on profits </li></ul><ul><li>Stockholders pay on dividends </li></ul>Type of Investor <ul><li>Not generally preferred for VCs: </li></ul><ul><li>Exit? </li></ul><ul><li>Distribution </li></ul><ul><li>Generally preferred for VCs </li></ul><ul><li>Limited partners </li></ul><ul><li>Certainty </li></ul>Management/ Governance <ul><li>Flexible </li></ul><ul><li>Single manager </li></ul><ul><li>Board of Managers </li></ul><ul><li>Member-managed </li></ul><ul><li>Less Flexible: </li></ul><ul><li>Board of Directors </li></ul><ul><li>Officers </li></ul><ul><li>Stockholders </li></ul>Employee Incentive Plans More difficult “ working units”/profits interests Incentive Stock Options
  5. 5. NOW YOU’VE CHOSEN THE RIGHT ENTITY FOR YOU—FOUNDERS ISSUES
  6. 6. FOUNDERS’ ISSUES (CONT’D)
  7. 7. FOUNDERS’ ISSUES (CONT’D) <ul><li>Clean IP Assignments </li></ul><ul><ul><li>Applies to ALL employees, contractors, etc. and in various agreements </li></ul></ul><ul><ul><ul><li>Full coverage is beyond scope of this presentation </li></ul></ul></ul><ul><li>Pay for your stock/interests!! </li></ul><ul><ul><li>Should be able to document payment and issuance </li></ul></ul><ul><ul><li>“ Fully paid and non-assessable” </li></ul></ul><ul><li>Mistakes: </li></ul><ul><ul><li>Case of mistaken identity </li></ul></ul><ul><ul><li>Poor documentation can lead to disputes </li></ul></ul><ul><ul><li>Not keeping “cap table” clean </li></ul></ul>
  8. 8. WHAT’S A “CAP TABLE”
  9. 9. One Portion of a Complex Cap Table
  10. 10. EMPLOYEE INCENTIVE PLANS
  11. 11. EMPLOYEE INCENTIVE PLANS (CONT’D)
  12. 12. RAISING SEED CAPITAL: THE “FAMILY & FRIENDS” ROUND
  13. 13. ANGEL & VENTURE CAPITAL—DEAL DOCUMENTS & ISSUES
  14. 14. SERIOUSLY?! WHAT’S THIS GONNA COST ME?! <ul><li>Attorney’s fees vary widely </li></ul><ul><li>Negotiate with your attorney: </li></ul><ul><ul><li>Value Billing/Start-up packages </li></ul></ul><ul><ul><li>Hourly rates and lawyers on your file </li></ul></ul><ul><ul><li>Investor’s counsel fees & caps </li></ul></ul>
  15. 15. SERIOUSLY?! WHY BOTHER?! MY BUSINESS IS GOOD & I HAVE ENOUGH TO WORRY ABOUT! <ul><li>Correcting mistakes is far more costly </li></ul><ul><li>Happy employees </li></ul><ul><li>Happy investors </li></ul><ul><li>Roadmaps </li></ul><ul><li>Credibility!!! </li></ul>
  16. 16. CONCLUSION <ul><li>Entrepreneurship is a difficult road, and you have enough to worry about </li></ul><ul><li>Good documents and corporate practices give you peace of mind </li></ul><ul><li>View them as a roadmap for administration and successful business </li></ul><ul><li>Questions? </li></ul>

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