Early Stage Venture

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Garland Brown, an attorney with GreenBerg, Traurig, LLP discusses fundamentals of organizing, funding and IP for startup technology companies. See www.danlistens.com for other notes.

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Early Stage Venture

  1. 1. Discussion for Early Stage Ventures Presented by: Garland A. Brown, Jr. ©2007, Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. Thoughts and Ideas for Early Stage Ventures Microsoft BizSpark Update Meeting ─ May 14, 2009
  2. 2. Agenda <ul><li>Entity Structure/Formation </li></ul><ul><li>Early Stage Funding </li></ul><ul><li>Intellectual Property Protection </li></ul><ul><li>Licensing </li></ul>
  3. 3. Choice of Entity <ul><li>Sole Proprietorship </li></ul><ul><li>General Partnership </li></ul><ul><li>Limited Liability Company / Partnerships </li></ul><ul><li>S Corporation </li></ul><ul><li>C Corporation </li></ul>
  4. 4. Business Entity Formation Traits Sole Proprietor General Partnership Limited Liability Company S Corporation Corporation Formation No state filing Agreement between 2 or more No state filing State filing required State filing required State filing required Duration of Existence Dissolves when sole proprietor ceases doing business Dissolves upon death or withdrawal of partner Perpetual Perpetual Liability Unlimited Unlimited Member not liable for LLC debts Shareholders not liable Shareholders not liable
  5. 5. Business Entity Formation Traits Sole Proprietor General Partnership Limited Liability Company S Corporation Corporation Pass Through Yes Yes Yes Yes No Double Tax No No No No Yes Cost of Creation None None State filing fee State filing fee State filing fee Raising Capital Difficult Through adding partners Possible Shares sold Shares sold Transferability of Interest No No Operating Agreement Yes Yes
  6. 6. Business Entity Formation Traits Sole Proprietor General Partnership Limited Liability Company S Corporation Corporation Operational Requirements Few legal requirements Few legal requirements Some formal requirements Board of Directors, annual meetings / reporting Board of Directors, annual meetings / reporting Management Sole proprietor has full management rights Each partner typically has equal voice Operating agreement outlines management Managed by directors Managed by directors Taxation Not a taxable entity/1040 schedule C Not a taxable entity/Partners taxed Income - loss passed to members Income - loss passed to shareholders Taxed at entity
  7. 7. Last Word on Entity Formation <ul><li>The entity decision is far less important than the people decisions </li></ul><ul><li>Will you have an advisory board? Who will be on it? </li></ul><ul><li>Are you sure YOU are the right person for every job? </li></ul><ul><li>Are you surrounded by the right team members? Are you hearing enough counter / opposing opinions / enough supporting positions? </li></ul>
  8. 8. Raising Early Stage Money ─ Equity vs. Debt <ul><li>Debt – Principal and Interest to be Repaid </li></ul><ul><ul><li>Requires an income stream to be interesting </li></ul></ul><ul><ul><li>Acts as a bridges to subsequent financing event(s) </li></ul></ul><ul><ul><li>Interest/dividend on preferred stock </li></ul></ul><ul><ul><li>Typically senior to equity </li></ul></ul><ul><li>Equity: Valuation is sticking point </li></ul><ul><ul><li>What is the valuation? </li></ul></ul><ul><ul><li>Fiduciary oversight and responsibility </li></ul></ul><ul><ul><li>VC’s will place a valuation </li></ul></ul><ul><li>Middle Ground: Convertible Debt </li></ul><ul><ul><li>Allows FFF’s (and Angels) to convert to equity at a discount while at the same time accumulating interest </li></ul></ul>
  9. 9. Source of Funds Risk Time Seed Startup Early Growth Expansion Maturity Founders Friends and Family Angels Venture Capital Acquisition & Equity Markets Banks
  10. 10. Last Word on Raising Early Stage <ul><li>Keep as much of the company (early on) as possible </li></ul><ul><li>Think long and hard regarding how much equity you are willing to give to employees </li></ul><ul><li>VC’s will control valution </li></ul>
  11. 11. IP <ul><li>Copyright </li></ul><ul><li>Trademark </li></ul><ul><li>Patent </li></ul><ul><li>Trade Secret </li></ul><ul><li>Licensing </li></ul>© ©
  12. 12. Garland A. Brown, Jr. [email_address] <ul><li>Garland Brown focuses his practice in the areas of litigation, intellectual property, antitrust law and IP mediation. Garland, who has wide-ranging experience in the software industry, was Director of Antitrust Law Compliance during his 11 years at Microsoft. </li></ul><ul><li>Areas of Experience </li></ul><ul><li>Intellectual property </li></ul><ul><li>Antitrust </li></ul><ul><li>Privacy issues </li></ul><ul><li>Regulatory compliance </li></ul><ul><li>Alternative Dispute Resolution </li></ul>Greenberg Traurig, LLP 2375 East Camelback Road Suite 700 Phoenix, AZ 85016 Phone: (602) 445-8421 Fax: (602) 445-8641

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