 Company separate from founding
organization
 Some major companies like Palm and
Lucent were originally ‘spin offs’

 Becoming a metric in and of itself
 Demonstration of new enterprise
formation
 Licenses can create jobs too
 Tendency is to use a spin-off locally in
preference to a license externally

 Need to put a business on a business
footing
 By sheltering within parent organization
sometimes don’t cut apron strings
 Finances become confused
 Personnel commitments can be
conflicted
 Generating tax incentives and
attracting other money

 Loss of tax status
 Core competency
 Market valuation problems

 Can’t be a one time licensing play
› May be tax reasons to incorporate these
externally
› Not officially a spin off
 Needs to be able to sustain itself
› Platform technology is best
› Platform allows future growth
› Definition of platform may be debated
› Pros and cons?

 Technology
› This is the easy one
 A Plan
› Who will do this?
 Money
› Sometimes surprisingly, this
is the second easy one
 People
› Toughest one
› What do you do when Chief
scientist wants to run a company?

 Technology
› Decision to assign or license?
› Assignment not possible if initiating
organization either won’t or can’t
› Won’t: matter of policy
› Can’t: IP constitutes needed background for
other IP being practiced

 Will amount be paid in cash, shares or
combination?
 Assignment likely to be an equity interest
 License likely to be cash
› Can be deferred as needed

 Becoming a very important component
 How is it funded?
 Sometimes this is what generates the
Money and the People
 Consider engaging a professional

 Business plan identifies cash needs
 How do you raise money?
 Smaller amounts may be self-financed in
may cases
 Larger amounts may require access to
outside money

 Friends and Family
› Amounts ~ <$250K
 Angel Investors
› ~ $100K to $5M
 Venture Capital
› ~ $1M to $25M
 Public markets
› > $10M

 How much will the money cost in terms
of equity?
› Who is providing the money?
› What is value of other components?
 What is plan for future money?
› IPO usually doesn’t happen until 2 or 3
private financings
› Each tier is called a ‘tranche’

 Technology is worth?
 Cash in is $1M
 On paper company
is worth:
› Technology ($0) +
Cash ($1M)
 What percentage of
company should
person with the cash
get?

 What skills do you need?
 What power will the
people have?
 Cost of people
› More gray hair the higher
the price
› Compensation will be
combination of cash, stock
and options

 You will have at least 2 different types of
people and generally 3 or more
› Organization originating technology
› Researcher
› Where the money comes from
› The people
› Professional advisers

 Peace isn’t possible; settle for an
operating agreement
 What are key points?
› Shareholders; Directors and Officers
› What will company do?
› Employees
› Death; disability; unwillingness to act

 Deadlock breaking
 Buy/sell; shotgun; puts & calls
 Family breakdown
 Non-dilution; coattails
 Non-competes and
confidentiality

Marcel D. Mongeon
+1 (905) 390 1818
marcel@mongeonconsulting.com