Start Ups – Creation And Issues

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Presentation on issues related to a spin-off company formation. Given as part of an ASEAN-USPTO Program on Technology Transfer in Bangkok, Thailand, July 3, 2009.

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Start Ups – Creation And Issues

  1. 1.  Company separate from founding organization  Some major companies like Palm and Lucent were originally ‘spin offs’
  2. 2.  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
  3. 3.  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
  4. 4.  Loss of tax status  Core competency  Market valuation problems
  5. 5.  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?
  6. 6.  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?
  7. 7.  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
  8. 8.  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
  9. 9.  Becoming a very important component  How is it funded?  Sometimes this is what generates the Money and the People  Consider engaging a professional
  10. 10.  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
  11. 11.  Friends and Family › Amounts ~ <$250K  Angel Investors › ~ $100K to $5M  Venture Capital › ~ $1M to $25M  Public markets › > $10M
  12. 12.  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’
  13. 13.  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?
  14. 14.  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
  15. 15.  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
  16. 16.  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
  17. 17.  Deadlock breaking  Buy/sell; shotgun; puts & calls  Family breakdown  Non-dilution; coattails  Non-competes and confidentiality
  18. 18. Marcel D. Mongeon +1 (905) 390 1818 marcel@mongeonconsulting.com

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