Slides from my small group teaching session for Masters students at the Royal Institute of Technology in Stockholm, Sweden.

1. Legal
Formation and
Intellectual
Capital
Things to consider when
starting out (in Sweden)
Claire Ingram
Stockholm School of Economics
NB! This is a general overview and does not constitute legal
advice – consult a lawyer if you have specific questions

2. • Recap of Monday’s lecture
• Pros and Cons of different sources of finance
• Structuring a Company
• Structuring a Financing Deal
• Scenarios particular to High Tech Entrepreneurship
• What is Intellectual Property?
Schedule Today

3. Investments in Sweden
Angel Investors
Invest large amounts, make few
investments and take equity share.
3.3-3.9 billion SEK p.a.
(approximation, based on 2008
data)
Soft Loans
State loans at high interest rates, but
which can be written off on enterprise
dissolution.
2.4 billion SEK p.a. (ALMI alone)
Venture
Capitalists
Invest large amounts, make few
investments and take equity share.
1.8 billion SEK p.a. (2010 data)
Crowdfunding
Either donation, pre-purchase/reward-
based or equity, depending on
platform and entrepreneur’s
preferences.
Estimated 100 million SEK (2014)
Ingram & Teigland, 2013

4. • Advice and Strategy
• Contacts
• Hiring
• Partnerships
• Profile and PR
• Further access to capital
• Trusted service provider
relationships
• Experience
• Internationalisation
• Exit optimisation
• ”Stamp of Approval”
Investors can bring
• Autonomy
• High Risk, High Reward
• Alternative Business Models
• But viable, esp. for software
startups
Going it alone can bring
Summary of Benefits

5. • Sole Proprietorship (Enskild Firma)
• No legal distinction between owner and company
• No legal ”personality” – so no company contracts
• Owner liable for company debts
• Often hard to raise capital
• Corporation (Akiebolag)
• Limited Liability
• Separate legal personality
• Can sell stocks/shares
• Corporate Governance structures (Boards etc)
Company registration

6. • Shareholder Agreement
• Who is in charge
• What are the rules around purchase and selling of
shares and firm
• On agreement
• On majority
• Right of First Refusal
Relations between Owners

7. • Buy-outs
• Purchase by a large firm (Google, Ericsson etc.)
• Purchase by a Private Equity firm
• IPOs
• Initial Public Offering
• Really stringent legal requirements around transparency & disclosure
• Disclosure means that investors see firm as less risky
• Could be a way to grow business – or an exit strategy for
founders/investors
• Private Placement
• Sale of shares to private companies
Or ”exit?”
Late

8. • Companies’ main imperative is to create value for
shareholders
• So what about social entrepreneurship?
 Discussion, then break
Purpose of a Company
LoanBootstrap
Friends &
Family
Angel VCGrant Crowd

9. • Pre Money: The value of the firm prior to the new
investment
• Fully Diluted: The firm’s total number of shares
including all outstanding purchases (e.g. Options)
Some Terminology

10. • Multiple Stock types
• Common Stock
• Ownership stake
• Right to Vote
• Right to Dividends on issue / Appreciation on sale
• Right to share of assets on Bankruptcy/Liquidation
• Preferred Stock
• As the name suggests, ”preferred”
• Convertible Notes
• A debt instrument that is convertible into common stock
• Converts either immediately or on a vote by shareholders
• Can be limits on value/number of shares obtainable through
a convertible note
Structuring a deal

11. • Stock that has particular rights attached to it
• Some common rights are:
• Option: Right to purchase stock (at a later date) at a pre-determined price
• First Refusal: Should a company decide to sell stock, must
• Conversion: Right to convert a preferred share to another kind of share
• Pre-emption: Right to be involved in future rounds of financing
• Registration: Right to oblige a company to register for IPO/include shares in
an IPO
• Redemption: Right to force a company to purchase back shares
• offer it to right holder first
• Co-Sale Agreements
• Voting/Veto agreements
• Drag Along: Where the majority agrees on something, minority members are
obliged to participate in the deal/agreement
• Liquidation Preference: Investor gets preference in the event that the firm is
liquidated/goes bankrupted
Preferred Stock

13. • Entail negative rights – can’t make anyone do anything, can only
get them to stop once started
• Patents
• EU or US
• Different requirements, different applicability
• MUST be registered
• Trademarks
• Need not be registered
• Visual representation with distinctive character, used in Trade
• Copyrights
• Need not be registered
• Protects tangible works of authorship, e.g. writing, music, works of art
• Right of integrity: this is the right of an author to ensure that his/her
work is not subjected to derogatory treatment (not in US)
Intellectual Property

14. 1. First to file for patent
2. Meant to protect industrially
applicable/technical inventions only
3. New, not pre-existing
4. Not-obvious from the "closest
prior art” – therefore involves an
inventive step
EU Patents
1. The first inventor must apply
2. Patentable subject matter:
• Machine (e.g. 3D printer)
• Article of manufacture (e.g.
Diagnostic kit)
• Composition of matter (e.g. A
Drug)
• Process (e.g. Making nanotubes)
3. Novel and timely
4. The invention must be non-
obvious
5. The invention must be
sufficiently documented
US Patents
Brief overview of Patents

15. • Can be owned by any legal entity – so the company
or the individual
• In US, things developed while employed usually
accrue to employer.
• In Europe, inventions usually remain property of
individual (unless contract to the contrary).
• INCREDIBLY lucrative – e.g. Patent Trolls
• Really attractive to investors
Ownership of I.P.

16. 1. Cheaper and more accessible hardware parts
2. Smartphones and tablets have many of the
hardware & software features of a computer
3. Platforms that facilitate customer access (Google
Play, iTunes store etc)
4. Potential for global sales through these platforms
5. Easier and quicker prototyping (3D printing)
6. Low interest rates
7. Crowdfunding
Lower Barriers for Entry

17. • Due to global markets, social media etc – increased
importance of other forms of capital
• Social Capital: Resule from social networks (who people
know) and the norms of reciprocity (desire to help one
another) that results
• Human Capital: Skills that the human members of the
team have
• Structural Capital: “… hardware, software, databases,
organizational structure, patents, trademarks, and
everything else of organizational capability that
supports those employees’ productivity.” (Bontis 2000)
• Intellectual Capital: Tangible and intangible intellectual
capital – both human and structural capital.
Forms of Capital

18. • Discussion
Forms of Capital: Discussion

19. Thank You!
Claire Ingram
Stockholm School of Economics
claire.ingram@hhs.se
@Claire_EBI