Startup 101 RefreshMiami by Gaida Zirkelbach, Esq. (gzirkelbach@gunster.com) and Nicholas Robbins, Esq. (nrobbins@gunster.com) GUNSTER – FLORIDA’S LAWYERS FOR BUSINESS

This presentation and related information have been prepared by Gunster, Yoakley & Stewart, P.A. for information purposes only and do not constitute advertising, a solicitation, or legal advice. Such presentation, materials and information contained herein is not intended to create, and receipt thereof does not constitute formation of, and attorney-client relationship. The presentation, materials and information should not be relied upon for any purpose without seeking legal advice from a licensed attorney. The information contained in this presentation and related course materials is provided only as general information and may or may not reflect the most current legal developments; accordingly, this information is not promised or guaranteed to be correct or complete. Gunster, Yoakley & Stewart, P.A. expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this presentation or related course materials and information.

This presentation and related information have been prepared by Gunster, Yoakley & Stewart, P.A. for information purposes only and do not constitute advertising, a solicitation, or legal advice. Such presentation, materials and information contained herein is not intended to create, and receipt thereof does not constitute formation of, and attorney-client relationship. The presentation, materials and information should not be relied upon for any purpose without seeking legal advice from a licensed attorney. The information contained in this presentation and related course materials is provided only as general information and may or may not reflect the most current legal developments; accordingly, this information is not promised or guaranteed to be correct or complete. Gunster, Yoakley & Stewart, P.A. expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this presentation or related course materials and information.

I have an idea. Now what?

Birth of an Idea and the Birth of a Company Is this idea my idea? Who owns my idea? Can I stop others from using my idea? How can I get paid for my idea?

Is this idea my idea?

Who owns my idea?

Can I stop others from using my idea?

How can I get paid for my idea?

Choosing a Legal Structure Limit liability, tax efficiency, corporate governance Common types of entities: Sole Proprietorship Partnership Corporation Limited Liability Company Where to organize – Florida v. Delaware

Limit liability, tax efficiency, corporate governance

Common types of entities:

Sole Proprietorship

Partnership

Corporation

Limited Liability Company

Where to organize – Florida v. Delaware

Protecting Your Idea Confidentiality Agreements Work for Hire / Assignment Agreements Register and Protect Intellectual Property

Confidentiality Agreements

Work for Hire / Assignment Agreements

Register and Protect Intellectual Property

Types of Intellectual Property Copyrights protect the expression of an idea (but not just an idea) must be in fixed in tangible medium of expression exclude others from reproducing, preparing derivative works from, distributing, performing publicly, or displaying publicly (with some exceptions, such as fair use) exists upon creation – but registration with United States Copyright Office can provide additional legal rights usually shown as: © Company Name, Year examples : design of Coca-Cola bottle; text and images on a website describing a service

Copyrights

protect the expression of an idea (but not just an idea)

must be in fixed in tangible medium of expression

exclude others from reproducing, preparing derivative works from, distributing, performing publicly, or displaying publicly (with some exceptions, such as fair use)

exists upon creation – but registration with United States Copyright Office can provide additional legal rights

usually shown as: © Company Name, Year

examples : design of Coca-Cola bottle; text and images on a website describing a service

Types of Intellectual Property Trademarks protect association of a company with its goods or services prevent consumer confusion and others from benefiting from goodwill associated with your company’s products and services usually shown as: Logo ™ (as soon as claim rights) or Logo® ( only after USPTO registers the mark) examples : logo on Coca-Cola bottle; logo or slogan on a website associated with a service

Trademarks

protect association of a company with its goods or services

prevent consumer confusion and others from benefiting from goodwill associated with your company’s products and services

usually shown as: Logo ™ (as soon as claim rights) or Logo® ( only after USPTO registers the mark)

examples : logo on Coca-Cola bottle; logo or slogan on a website associated with a service

Types of Intellectual Property Patents protect ideas or inventions exclude others from making, using, offering for sale, selling or importing must be issued by the United States Patent and Trademark Office must have utility; be novel; not obvious to an ordinary person at the time made; and thoroughly explained and documented examples : shape of Coca-Cola bottle; computer software; novel service or product being sold on a website

Patents

protect ideas or inventions

exclude others from making, using, offering for sale, selling or importing

must be issued by the United States Patent and Trademark Office

must have utility; be novel; not obvious to an ordinary person at the time made; and thoroughly explained and documented

examples : shape of Coca-Cola bottle; computer software; novel service or product being sold on a website

Types of Intellectual Property Trade Secrets Protect confidentiality of ideas and information independent economic value from not being known by others must take reasonable measures to protect secrecy no registration requirement examples : formula for Coca-Cola; source code

Trade Secrets

Protect confidentiality of ideas and information

independent economic value from not being known by others

must take reasonable measures to protect secrecy

no registration requirement

examples : formula for Coca-Cola; source code

Why Protecting Your Idea Matters Attracting investment Buyout Exclusivity Barriers to Entry Licensing Opportunities Joint Ventures Defensive Purposes Establish Expertise Establish Brand Loyalty

Attracting investment

Buyout

Exclusivity

Barriers to Entry

Licensing Opportunities

Joint Ventures

Defensive Purposes

Establish Expertise

Establish Brand Loyalty

I’ve got a company. Who can fund it?

Who are these Venture Capitalists? Professional investors who manage a portfolio of growth companies (however, not looking to operate them). Long-term outlook – 5-7 year investment horizon Goal is to maximize return while limiting investment risk Not lifestyle investors

Professional investors who manage a portfolio of growth companies (however, not looking to operate them).

Long-term outlook – 5-7 year investment horizon

Goal is to maximize return while limiting investment risk

Not lifestyle investors

Private Equity Performance Index Investment Horizon Performance, 2005 What is Venture Capital?

Comparison of Local Landscape Sources: 2008 NVCA Yearbook Crossbow Ventures, Inc. What is Venture Capital?

Valuation Supply and Demand Market Environment IPO Market Public Market M&A Market Other VC Valuations Deal Terms Greater Demand from VC Community = Greater Upward Valuation Pressure What is My Company Worth?

Supply and Demand

Market Environment

IPO Market

Public Market

M&A Market

Other VC Valuations

Deal Terms

Greater Demand from VC Community = Greater Upward Valuation Pressure

Source: DowJones VentureOne Convertible Preferred Convertible Participating Preferred Common Convertible Debt Other 0 20 40 60 80 100% 25.0% 66.9% 9.3% 4.7% 1.2% Type of Securities Issued to Investors What Does the Deal Look Like?

Key Deal Considerations Economics - Valuation Control - Board seat - Class vote on major corporate decisions - Investor rights Valuation Protection - Liquidation Preferences 1-4 x - Anti-Dilution Price Protection - Dividends - Rights of First Refusal Liquidity Protection - Redemption Rights - Registration Rights - Follow-Along and Drag-Along Rights Type of Securities Deal Structure - Common Stock - Convertible Note - Preferred Stock What Does the Deal Look Like?

Economics

- Valuation

Control

- Board seat

- Class vote on major corporate decisions

- Investor rights

Valuation Protection

- Liquidation Preferences 1-4 x

- Anti-Dilution Price Protection

- Dividends

- Rights of First Refusal

Liquidity Protection

- Redemption Rights

- Registration Rights

- Follow-Along and Drag-Along Rights

Type of Securities

Deal Structure

- Common Stock

- Convertible Note

- Preferred Stock

Art of The Successful VC Deal 1. Realistic Valuation 3. Proven Management 4. Strong Investors 5. Shared Vision 2. Correct Capital Assumptions 6. Trust 7. “Market” Term Sheet 8. Experienced Company Counsel 9. Experienced Investor Counsel How Do We Get There?

I’m up and running. Now what?

Continue to Protect Your Idea Relationships with Employees and Independent Contractors Relationships with Vendors / Service Providers Relationships with Customers and End-Users

Relationships with Employees and Independent Contractors

Relationships with Vendors / Service Providers

Relationships with Customers and End-Users

Employees and Independent Contractors Work for Hire / Assignment Confidentiality Non-Competition Non-Solicitation

Work for Hire / Assignment

Confidentiality

Non-Competition

Non-Solicitation

Vendors / Service Providers Work for Hire / Assignment Confidentiality Non-Competition Non-Solicitation Licenses Warranties Liability

Work for Hire / Assignment

Confidentiality

Non-Competition

Non-Solicitation

Licenses

Warranties

Liability

Customers / End Users Service Agreement / License Agreement / Purchase Agreement / Terms of Use Signed, browsewrap, clickwrap Privacy Issues Social Media = user generated content

Service Agreement / License Agreement / Purchase Agreement / Terms of Use

Signed, browsewrap, clickwrap

Privacy Issues

Social Media = user generated content

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