Law & Order:Financing Optionsfor Startups  February 12, 2013  Nicole Moss  (617) 816-8220  nmoss@campbellriggs.com
DisclaimerThe information presented herein and the surroundingdiscussion are provided for educational or informationalpurp...
Sources of Funds for Startups
Sources of Funds for Startups• Founding Team        • Banks• Friends & Family     • Mezzanine Funds• Angels               ...
Categories of Fund Sources• Equity• Debt• Hybrids
Debt Structures• Credit Cards• Promissory Notes• (Convertible Notes are hybrids)• Loans
Credit Cards• Higher Rates than other Debt• Compounding Interest
Promissory Notes• Principal• Interest• Repayment Structure• Prepayment• Default• Personal Guarantee (maybe)
Super-Simple Org ChartShareholders               Company                Assets
Super-Simple Org ChartShareholders             Personal Guarantee                         Debt document                   ...
Loans• Same as P-Notes PLUS• Covenants• Reps & Warranties• Bringdowns• Diligence• Secured with Assets/Collateral,  Guarant...
SBA Loans• Same as Regular Loans PLUS• More Paper• Longer Payment Schedule• No/Lite Prepayment Penalties• Lighter Covenant...
Equity Structures• Common Stock (or membership units  in an LLC)• Preferred Stock• Warrants & Options
Super-Simple Org ChartShareholders               Company                Assets
Simple Org ChartShareholder #1 – 50%Shareholder #2 – 30%Shareholder #3 – 20%                  Company                     ...
Org ChartShareholder #1 – 50%               Liquidity Event: $1000Shareholder #2 – 30%Shareholder #3 – 20%               D...
Common Stock• For cash, in-kind, in lieu of compensation• = a Security• Governed by: • Federal & State Securities Laws • S...
Preferred Stock• Like Common PLUS• Liquidation Preference• Convertible• Superior Voting Rights/Protection• Anti-dilution –...
Preferred #1 – 50% Org      ChartShareholder #1 – 25%                Liquidity Event: $1000Shareholder #2 – 15%           ...
Warrants & Options• Not an Equity, but still a Security• Exercise Threshold• Strike Price• Warrants -> Transactions• Optio...
Hybrid Structures• Loans with PIKs, Warrants• Convertible Notes
Q&A
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Financing Options for Startups by Nicole Moss

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Financing Options for Startups by Nicole Moss

  1. 1. Law & Order:Financing Optionsfor Startups February 12, 2013 Nicole Moss (617) 816-8220 nmoss@campbellriggs.com
  2. 2. DisclaimerThe information presented herein and the surroundingdiscussion are provided for educational or informationalpurposes only. The information presented herein is notnecessarily applicable to any particular situation herein ordiscussed in the course of this presentation. By providing thisinformation and engaging in discussion, no legal advice isprovided hereby and no attorney client relationship or privilegeis being established. Every business and every issue is uniqueand legal questions or issues should be directed to yourattorney.
  3. 3. Sources of Funds for Startups
  4. 4. Sources of Funds for Startups• Founding Team • Banks• Friends & Family • Mezzanine Funds• Angels • Private Lenders• Super Angels • Crowdfunding• Accelerators, etc. • Grants• Seed Funds• VC Funds
  5. 5. Categories of Fund Sources• Equity• Debt• Hybrids
  6. 6. Debt Structures• Credit Cards• Promissory Notes• (Convertible Notes are hybrids)• Loans
  7. 7. Credit Cards• Higher Rates than other Debt• Compounding Interest
  8. 8. Promissory Notes• Principal• Interest• Repayment Structure• Prepayment• Default• Personal Guarantee (maybe)
  9. 9. Super-Simple Org ChartShareholders Company Assets
  10. 10. Super-Simple Org ChartShareholders Personal Guarantee Debt document secured by Company guarantee or collateral or both Assets Collateral
  11. 11. Loans• Same as P-Notes PLUS• Covenants• Reps & Warranties• Bringdowns• Diligence• Secured with Assets/Collateral, Guarantees• UCC Filings
  12. 12. SBA Loans• Same as Regular Loans PLUS• More Paper• Longer Payment Schedule• No/Lite Prepayment Penalties• Lighter Covenants• Non-recourse (maybe)
  13. 13. Equity Structures• Common Stock (or membership units in an LLC)• Preferred Stock• Warrants & Options
  14. 14. Super-Simple Org ChartShareholders Company Assets
  15. 15. Simple Org ChartShareholder #1 – 50%Shareholder #2 – 30%Shareholder #3 – 20% Company Assets
  16. 16. Org ChartShareholder #1 – 50% Liquidity Event: $1000Shareholder #2 – 30%Shareholder #3 – 20% Distribution: $1000 Waterfall: - outstanding debt Company - shareholders pro rata Assets
  17. 17. Common Stock• For cash, in-kind, in lieu of compensation• = a Security• Governed by: • Federal & State Securities Laws • State Corporate Laws • Certificate of Formation (public) • Bylaws • Other Agreements – Shareholders’, Investors’ Rights…
  18. 18. Preferred Stock• Like Common PLUS• Liquidation Preference• Convertible• Superior Voting Rights/Protection• Anti-dilution – ROFR, Participation
  19. 19. Preferred #1 – 50% Org ChartShareholder #1 – 25% Liquidity Event: $1000Shareholder #2 – 15% Distribution: $1000Shareholder #3 – 10% Waterfall: - outstanding debt Company - Preferred shareholders pro rata - Common shareholders pro rata Assets
  20. 20. Warrants & Options• Not an Equity, but still a Security• Exercise Threshold• Strike Price• Warrants -> Transactions• Options -> Compensation
  21. 21. Hybrid Structures• Loans with PIKs, Warrants• Convertible Notes
  22. 22. Q&A
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