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 Attorney Walter Wright on The Spectrum Of Financing Options
 

Attorney Walter Wright on The Spectrum Of Financing Options

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Walter Wright Attorney Trinity Law Group presentation of venture capital, angel and other financing options for start-up and emerging companies.

Walter Wright Attorney Trinity Law Group presentation of venture capital, angel and other financing options for start-up and emerging companies.

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     Attorney Walter Wright on The Spectrum Of Financing Options Attorney Walter Wright on The Spectrum Of Financing Options Presentation Transcript

    • Legal Series: Financing Issues - Stops Along the Investment Food ChainMass Technology Leadership Council The Spectrum of Financing Options Walter A. Wright, III, Esq. Trinity Law Group LLC 781.329.0008 wwright@trinitylg.com
    • The Spectrum of Financing OptionsMany sources of money …series of stops?a food chain? …financing is a relationshipspectrum • Like all successful relationships, must be structured and managed properly • Understand entrepreneur goals and limitations • Understand company goals and limitations • Understand investor goals and limitations • Be certain the investor understands the company, and that there is a fit between company and investor Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing Options Sources of Capital Entrepreneur Friends and Family Angels Venture Capital Company Commercial Banks Quasi-Government Agencies Public Capital Markets Operations Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsThe Entrepreneur• Should be initial source of company funds• Obvious limitations on amount of money available• Entrepreneur needs to show commitment to company – doesn‟t mean you need to tie up your entire net worth• As company grows, it may be necessary to turn to outside sources• The appropriate type of investor and investment varies according to type and stage of company Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsFriends and Family• Members of immediate and extended family; friends and friends of friends; business acquaintances• Can be evidence of „first believers‟ in what you‟re doing• Limitations on amounts available• Consider affects on personal relationships• Securities law issues Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsPlacement Agents? • Small investment banks will serve as “finders” • Will act as agents - not as principals • Can provide advice and introductions - but not capital • Will take a success fee - some funds don‟t like to pay • Be careful of being locked up; finders often require – Rights of participation in future offering – Warrants with negligible exercise price Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsAngel Investors • Become more organized, with professional managers who manage investments on behalf of the individuals • As personal portfolios have declined in value, the amount available for investment has decreased • Initial funding for product development, putting management team in place, leasing office space, initial equipment purchases, getting the beta, the first sale, etc. Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsInstitutional Investors • Commercializing product, creating a sales and distribution network, creating administrative infrastructure requires more substantial capital • Three common sources of growth capital are: traditional venture capital firms, commercial banks and quasi-government agencies • As company grows, it may be appropriate to raise capital in public capital markets Trinity Law Group LLC
    • The Spectrum of Financing OptionsVenture Capital: The Bright Side • Will take equity - no regular debt service requirement – preferred stock may carry redemption rights with coupon • Time horizon for liquidity event is beginning to lengthen again, after shrinking over the last few years • Access to experienced board members and mentors • Ability to leverage investor relationships • Acceleration Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsVenture Capital: The Dark Side • Valuations are depressed • Founders give up a substantial piece of the company – Become especially pronounced over the last 12-18 months • Restrictions on operations, future financings and corporate transactions • Control at risk • Managing Investors Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsCommercial Banks • Commercial banking business model not designed for early stage companies with limited or no tangible assets or cash flows • There are a limited number of banks who will loan to entrepreneurial tech companies • Some banks have formed dedicated entities to focus on entrepreneurial companies • May be appropriate source of expansion capital once operations are up and running Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsCommercial Banks: The Bright Side • Usually not required to give up an equity stake – some warrant coverage usually required • As cash flow becomes available from operations or other financing sources, can retire debt • Establish financial reporting procedures, credit history Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsCommercial Banks: The Dark Side • Must service debt through regular payments of principal and interest • Security interest in company‟s assets – commercial banks rarely subordinate • Personal guarantees by founders frequently required – gets back to problem of exposing founders‟ personal assets • At some point, the bank will expect repayment Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsQuasi-Government Agencies • Subset of venture capital • Generally strictly limited by enabling legislation – Geographic focus – Industry – Size of company – Form of investment – Amount of investment in one company Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsQuasi-Government AgenciesA few examples:• U.S. Small Business Administration – www.sba.gov• Massachusetts Capital Resource Co. – www.masscapital.com• Massachusetts Technology Development Corporation – www.mtdc.com Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsPublic Equity: Initial Public Offering • Timing is critical • VC investors can provide invaluable guidance and introductions in process • Sizes of company and offering determine purchasers – if too small, many institutional purchasers will shy away or be prohibited from participating by their investment criteria • „Public Venture Capital‟ is attractive, but dangerous – investment banks in this space frequently lack resources or commitment to provide aftermarket support Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsPublic Equity: Merger with Public Shell • Bright Side: Compressed Timetable Reduced Expenses More Ways To Raise Money • Dark Side: With no underwriter to support the stock with research and trading, company becomes an orphan Can end up with worst of both worlds – Illiquid stock with price dictated by intermittent trades – No ability to value based on company‟s story – Added compliance cost and exposure to liability Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsOperational Alternatives • Funds from operations –plowback • Equipment leasing • Vendors • Customers • Strategic Partners Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsEquipment Leasing • Financing for „big ticket‟ tangible asset purchases • Usually provided by third party leasing company, but may also be available from equipment vendor • Subject to same requirements as traditional loans – credit checks, security interest, possibly personal guarantees • Option to buy at end of lease Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing OptionsStrategic Partners & Vendors • Industry players can be sources of financing or other resources • Usually only for a specific functional area, such as product or service development • In return, partner will get rights in the product or service, e.g., license, distribution, ownership • May have to agree to exclusive relationship Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing Options Building Successful Financing Relationships • Like all successful relationships, must be structured and managed properly • Understand entrepreneur goals and limitations • Understand company goals and limitations • Understand investor goals and limitations • Be certain the investor understands the company, and that there is a fit between company and investor Trinity Law Group LLC www.trinitylg.com
    • The Spectrum of Financing Options Sources of Capital Entrepreneur Friends and Family Angels Venture Capital Company Commercial Banks Quasi-Government Agencies Public Capital Markets Operations Trinity Law Group LLC www.trinitylg.com
    • Trinity Law Group is a greater Boston corporate law firm which practices the broad range ofbusiness law throughout Massachusetts, the United States and the world with well-recognizedattorneys of stellar academic and professional accomplishment. Trinity Law Group is founded onthe three pillars of strategy, technology and relationships that are transforming the practice ofbusiness law.Walter Wright has represented and counseled a broad spectrum of companies, investors,entrepreneurs and executives. Walt Wright has been named by Massachusetts Super Lawyers inBoston magazine as one of the top 100 attorneys in Massachusetts. The list compiles the 100lawyers who received the highest total of points in the Massachusetts Super Lawyers nomination,research and blue ribbon review process based on surveys of over 35,000 lawyers across the state.Walt Wright specializes in business and corporate law; leads a law and strategic counseling practiceintensely focused on the organizational, venture capital financing, operational and transactionalrequirements of entrepreneurs, emerging technology, marketing and information companies as wellas representing major venture capital funds and angel groups in investment transactions andexecutives in transition.Walt Wright’s law and strategic counseling practice intensely focuses on the organizational, venturefinancing, operational and transactional requirements of entrepreneurs, emerging technology andinformation companies as well as representing venture capital funds and angel groups in investmenttransactions and executives.Walter A. Wright, III Attorney Trinity Law Group LLC wwright@trinitylg.com 781.329.0088