Splitting equity among founders, team members, and other parties can often be a challenging process fraught with pitfalls for many startups.
The speaker will discuss the following issues:
1) the different types of shares available for issuance to founders and rights associated with such shares
2) the issues most commonly taken into account in connection with allocation of equity among the founding team
3) the common mistakes made by founders at the equity allocation stage and best practices for founders to follow at the entity formation stage
and more!
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
ddie Lampert bought Kmart out of bankruptcy. W.L. Ross made a fortune many times over buying steel and other companies out of bankruptcy. Hedge funds and other distressed debt traders buy and sell millions of dollars of distressed securities and bankruptcy claims every day. A number of private equity funds focus exclusively on buying distressed businesses, fixing, and selling them. And fortunes are made when real estate crashes by those who have the dry powder to swoop in and buy when others are forced to sell. This webinar explains how to loan to, or purchase the debt of, a company in order to acquire it (a strategy commonly called “loan to own”); how to learn about opportunities involving distressed companies; and tips and best practices for participating in bankruptcy, Article 9, and other sales of distressed businesses (including the concept of serving as the “stalking horse).
Part of the webinar series: RESTRUCTURING, INSOLVENCY & TROUBLED COMPANIES 2021
See more at https://www.financialpoise.com/webinars/
7.23.20 How to Raise Seed Funding for Your Startup: Convertible Notes and S...ideatoipo
Seed financings enable a startup to put together its initial team, build a working prototype, and begin to test the market. Often these investments are made via convertible debt or SAFEs. Veteran Silicon Valley startup and corporate attorney Jason Putnam Gordon will cover the following topics:
1. Required corporate structure
2. Legal considerations when pitching investors for seed financing
3. Differences between using convertible debt and SAFEs
4. Key terms and considerations when raising seed funding
5. Common mistakes and pitfalls that companies make when raising seed funding via convertible debt and SAFEs
6. How to close your seed financing
7. Important post-closing tasks
8. And much, much more
Come with your questions and get ready to be excited about seed financings!
.
About the Speaker
Jason Putnam Gordon is a results-oriented corporate attorney practicing in the Venture Capital and Emerging Growth Companies group in Polsinelli’s San Francisco office. Jason has a passion for working with experienced entrepreneurs and executives to make their vision a reality.
In his practice, he regularly represents companies throughout their life cycle in matters related to venture capital financing, strategic corporate relationships, corporate formation, complex mergers and acquisitions, sales, and divestitures. With industry focuses on consumer goods and technology, because of his broad skill set and deep network, Jason regularly works in wide array of verticals including artificial intelligence, virtual reality, augmented reality, video games, software, hardware, life sciences, the internet of things and agricultural technology.
Jason works with companies based locally, elsewhere in the U.S. and internationally. Jason brings a unique skill set to the negotiating table and to litigation-minimization strategies in the board room. He started his career as a federal law clerk in the United States District Court for the Eastern District of Pennsylvania and then continued as a litigator handling corporate, securities, intellectual property, and commercial litigation before establishing a transactional practice.
Outside of the office, Jason is dedicated to his family and has a passion for skydiving and indoor body flight.
If you have any questions regarding the content of this presentation, you can reach Jason at:
JGordon@polsinelli.com
How to Structure Venture Capital Term Sheets for a Win-Win Deal ideatoipo
T 4/13/21 How to Structure Venture Capital Term Sheets for a Win-Win Deal
7 PM to 8:30 PM Pacific Time (Online)
https://www.meetup.com/Silicon-Valley-Startup-Idea-to-IPO/events/276787604/
The emerging industry of Greek start-ups has gained remarkable ground, but also a lot of government recognition and kind of support during the last years: “A strong culture of innovation and entrepreneurship drives the public and private sectors to join forces through Elevate Greece and reach out into global markets, promoting Greece as a major innovation hub in Southeast Europe” (Source: https://elevategreece.gov.gr). But start-ups need, amongst others, to get supported with alternative funding methods: at the early stages of development, raising debt capital is extremely difficult for young companies, especially those with business models that aren’t fully proven, or firms that haven’t reached their break-even.
This is where Venture Capital (VC) plays a huge role by making risky investments in start-ups and young companies in return for equity ownership. The role is not limited to the capital contribution, VC also provides mentorship, industry connections, and a support network that enables the expansion of young business models. Therefore VC is not only beneficial to entrepreneurs, but it also has a positive impact on economic and business development.
This document summarizes the essentials of VC principles, activities, and methods and is based on VC guidelines published by international associations.
Once you move from a single person to adding a co-founder, hiring your first employee, or setting up a partnership that takes your company beyond just you, it’s important to make sure you have your stockholder agreements set up correctly. There is more than one kind of stock option to share. Do you know them all and when to use them? Don’t worry, we’ll help you.
This Google Hangout will cover invaluable information on structuring founder equity to avoid the pitfalls that can harm a company’s ability to attract investment capital.
Expert -
Bob Bishop, Goodwin Proctor
The Startup Guide to Venture Capital by Venture IntelligenceSuhas Motwani
1. Types of Investors
2. Sample Term Sheet For Early Stage Investments
3. Term Sheet for Startups: Do's and Don'ts
Law Office of Madhavan Srivatsan
3. Startups in India : Leveraging Opportunities
Economic Law Practice
4. Exit Rights: A Reality Check
Link Legal
5. Tomorrow Capital - Firm Profile
6. Directory Section containing tons of valuable data
Splitting equity among founders, team members, and other parties can often be a challenging process fraught with pitfalls for many startups.
The speaker will discuss the following issues:
1) the different types of shares available for issuance to founders and rights associated with such shares
2) the issues most commonly taken into account in connection with allocation of equity among the founding team
3) the common mistakes made by founders at the equity allocation stage and best practices for founders to follow at the entity formation stage
and more!
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
ddie Lampert bought Kmart out of bankruptcy. W.L. Ross made a fortune many times over buying steel and other companies out of bankruptcy. Hedge funds and other distressed debt traders buy and sell millions of dollars of distressed securities and bankruptcy claims every day. A number of private equity funds focus exclusively on buying distressed businesses, fixing, and selling them. And fortunes are made when real estate crashes by those who have the dry powder to swoop in and buy when others are forced to sell. This webinar explains how to loan to, or purchase the debt of, a company in order to acquire it (a strategy commonly called “loan to own”); how to learn about opportunities involving distressed companies; and tips and best practices for participating in bankruptcy, Article 9, and other sales of distressed businesses (including the concept of serving as the “stalking horse).
Part of the webinar series: RESTRUCTURING, INSOLVENCY & TROUBLED COMPANIES 2021
See more at https://www.financialpoise.com/webinars/
7.23.20 How to Raise Seed Funding for Your Startup: Convertible Notes and S...ideatoipo
Seed financings enable a startup to put together its initial team, build a working prototype, and begin to test the market. Often these investments are made via convertible debt or SAFEs. Veteran Silicon Valley startup and corporate attorney Jason Putnam Gordon will cover the following topics:
1. Required corporate structure
2. Legal considerations when pitching investors for seed financing
3. Differences between using convertible debt and SAFEs
4. Key terms and considerations when raising seed funding
5. Common mistakes and pitfalls that companies make when raising seed funding via convertible debt and SAFEs
6. How to close your seed financing
7. Important post-closing tasks
8. And much, much more
Come with your questions and get ready to be excited about seed financings!
.
About the Speaker
Jason Putnam Gordon is a results-oriented corporate attorney practicing in the Venture Capital and Emerging Growth Companies group in Polsinelli’s San Francisco office. Jason has a passion for working with experienced entrepreneurs and executives to make their vision a reality.
In his practice, he regularly represents companies throughout their life cycle in matters related to venture capital financing, strategic corporate relationships, corporate formation, complex mergers and acquisitions, sales, and divestitures. With industry focuses on consumer goods and technology, because of his broad skill set and deep network, Jason regularly works in wide array of verticals including artificial intelligence, virtual reality, augmented reality, video games, software, hardware, life sciences, the internet of things and agricultural technology.
Jason works with companies based locally, elsewhere in the U.S. and internationally. Jason brings a unique skill set to the negotiating table and to litigation-minimization strategies in the board room. He started his career as a federal law clerk in the United States District Court for the Eastern District of Pennsylvania and then continued as a litigator handling corporate, securities, intellectual property, and commercial litigation before establishing a transactional practice.
Outside of the office, Jason is dedicated to his family and has a passion for skydiving and indoor body flight.
If you have any questions regarding the content of this presentation, you can reach Jason at:
JGordon@polsinelli.com
How to Structure Venture Capital Term Sheets for a Win-Win Deal ideatoipo
T 4/13/21 How to Structure Venture Capital Term Sheets for a Win-Win Deal
7 PM to 8:30 PM Pacific Time (Online)
https://www.meetup.com/Silicon-Valley-Startup-Idea-to-IPO/events/276787604/
The emerging industry of Greek start-ups has gained remarkable ground, but also a lot of government recognition and kind of support during the last years: “A strong culture of innovation and entrepreneurship drives the public and private sectors to join forces through Elevate Greece and reach out into global markets, promoting Greece as a major innovation hub in Southeast Europe” (Source: https://elevategreece.gov.gr). But start-ups need, amongst others, to get supported with alternative funding methods: at the early stages of development, raising debt capital is extremely difficult for young companies, especially those with business models that aren’t fully proven, or firms that haven’t reached their break-even.
This is where Venture Capital (VC) plays a huge role by making risky investments in start-ups and young companies in return for equity ownership. The role is not limited to the capital contribution, VC also provides mentorship, industry connections, and a support network that enables the expansion of young business models. Therefore VC is not only beneficial to entrepreneurs, but it also has a positive impact on economic and business development.
This document summarizes the essentials of VC principles, activities, and methods and is based on VC guidelines published by international associations.
Once you move from a single person to adding a co-founder, hiring your first employee, or setting up a partnership that takes your company beyond just you, it’s important to make sure you have your stockholder agreements set up correctly. There is more than one kind of stock option to share. Do you know them all and when to use them? Don’t worry, we’ll help you.
This Google Hangout will cover invaluable information on structuring founder equity to avoid the pitfalls that can harm a company’s ability to attract investment capital.
Expert -
Bob Bishop, Goodwin Proctor
The Startup Guide to Venture Capital by Venture IntelligenceSuhas Motwani
1. Types of Investors
2. Sample Term Sheet For Early Stage Investments
3. Term Sheet for Startups: Do's and Don'ts
Law Office of Madhavan Srivatsan
3. Startups in India : Leveraging Opportunities
Economic Law Practice
4. Exit Rights: A Reality Check
Link Legal
5. Tomorrow Capital - Firm Profile
6. Directory Section containing tons of valuable data
Venture capital involves long-term equity investments in high-risk, high-growth startups and projects. It provides funding across various stages from seed money for new ideas to expansion funding for growing companies. Venture capital funds are typically organized as partnerships between venture capital firms who manage the funds and limited partners who provide the capital. Venture capital funding offers startups financing and expertise in exchange for equity, but it also subjects companies to greater pressure and investor control.
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
This document provides an overview of capitalization structures for corporations. It discusses common stock and preferred stock, how shares are authorized and created, vesting of founders' shares, option pools, and maintaining accurate stock records like a capitalization table. Maintaining good records of shares authorized, issued, outstanding and stock options is important for transactions and inquiries about ownership. A capitalization table example is provided to illustrate how shares are tracked on a fully diluted basis.
How to Position Your Startup for Venture Capital Fundingideatoipo
This document provides an overview of how startups can position themselves for venture capital funding. It discusses foundational concepts like entity structure, founder agreements, financing stages from convertible notes to Series A/B rounds. Key terms are explained like pre-money valuation, post-money valuation, and dilution. Common mistakes made by startups are also outlined such as non-compliance with securities laws and not properly managing equity records. The presentation aims to give founders a better understanding of attracting VC investment and negotiating favorable deal terms.
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
Seed financings enable a startup to put together its initial team, build a working prototype, and begin to test the market. Often these investments are made via convertible debt or SAFEs. Veteran Silicon Valley startup and corporate attorney Jason Putnam Gordon will cover the following topics:
1. Required corporate structure
2. Legal considerations when pitching investors for seed financing
3. Differences between using convertible debt and SAFEs
4. Key terms and considerations when raising seed funding
5. Common mistakes and pitfalls that companies make when raising seed funding via convertible debt and SAFEs
6. How to close your seed financing
7. Important post-closing tasks
8. And much, much more
Buying Property in Your Pension
This presentation explores buying property within a pension fund. Key points include:
- A pension fund can buy a property with acquisition costs paid from pension assets. Rental income and sale proceeds are then tax-free within the pension.
- Benefits are tax efficiency, but risks include lack of diversification and property illiquidity.
- Revenue rules forbid connected parties using the property and require arm's length dealings. Borrowing facilities now exist with limits.
- The process involves gathering pension assets, identifying a property, arranging financing if needed, acquiring the asset and appointing managers.
How to Position Your Startup for Venture Capital Fundingideatoipo
During this webinar you will learn the basics of the venture model and path along with the necessary steps to take so that your company’s legal structure is an attractive investment. The discussion will cover:
1. Why a Delaware C-Corp is the most-common structure
2. How to document the relationship of the founders and early employees
3. The typical funding stages of a successful startup
4. An overview of convertible debt and SAFEs
5. Why it’s critical to run pro forma cap tables before financings
6. What happens in a venture financing
7. Why compliance with securities laws is important
8. Common legal mistakes in raising capital
9. And much, much more
This white paper examines the two primary sources of compliance obligations related to contracts: performance obligations and government regulations. For each source of compliance challenge, this paper identifies methods to improve compliance and contract management. Finally, this paper examines the kind of reporting that makes
Contracts create the network of relationships that allow organizations to thrive. Contracts generate revenue and control expenses. They allocate risks and responsibilities. Contracts create assets and liabilities. Contracts are the foundation of enterprise.
Compliance requirements touch every organization across industries. Regulations can lay down the rules of the road or impose barriers to business. Compliance is essential for success, like good brakes on a car.
Five Things About Five Things That Every Start Should KnowFredrikson & Byron
This document summarizes key considerations for startups presented by attorneys from Fredrikson & Byron law firm. It discusses:
1) Choosing an entity, founder vesting, assigning intellectual property, and allocating equity fairly between founders.
2) Raising money legally, avoiding misrepresentations to investors, understanding different securities, and balancing investor rights.
3) Properly classifying employees vs. contractors, obtaining intellectual property assignments, using equity grants and severance appropriately.
4) Repeatedly obtaining intellectual property assignments, using open source software carefully, deciding on patent strategy, and using confidentiality agreements.
5) Preparing for an exit from the start by considering how founders and investors will realize
Hedge Fund Association SEC Comment Letter on Definition of Accredited InvestorsMitch Ackles
On behalf of the private investment fund industry (hedge funds, private equity funds, venture capital funds and real estate funds) and other growing operating businesses seeking capital in the United States from private investors rather than banks, the Hedge Fund Association (HFA) is concerned with the U.S. Securities and Exchange Commission’s (SEC) discussion of proposed changes to the definition of an “accredited investor” under Rule 501 of Regulation D. The HFA strongly and respectfully urges the SEC to reject an increase in the current requirements, originally set in 1982, to account for inflation. It is important to note that the definition was significantly narrowed when the value of an investor’s primary residence was excluded under The Dodd–Frank Wall Street Reform and Consumer Protection Act. Such a change would fundamentally undermine the private placement market which infused nearly $50 billion into the United States’ economy in 2013 and will materially and negatively impact small business growth by reducing the number of accredited investors in the United States by more than half.
The document discusses accounting for partnerships. It describes how partnerships are organized, including partners contributing assets and liabilities that are recorded at fair market value, increasing or decreasing partner's capital accounts. It discusses accounting for partnerships by debiting partner withdrawals and crediting/debiting partner's capital for their share of net income/loss. Common methods for dividing partnership income or loss are also summarized, including using stated ratios, capital balances, or services and capital ratios.
Help, My Business is In Trouble! (Series: Restructuring, Insolvency & Trouble...Financial Poise
When a business becomes financially troubled, the business owner often experiences denial, paralysis, or both. Lenders commonly lose confidence and then trust in the business, as communications tend to break down, deadlines are missed, and promises are broken. Small business owners commonly have issued personal guarantees, so business failure can often lead to personal financial stress. The good news is the business and business owner usually has some options, and even some leverage. This webinar explains what a business owner should- and should not- consider and do when dealing with financial trouble. Specific topics include discussion of bankruptcy (Chapters 7 and 11); assignments for the benefit of creditors; and friendly foreclosures. This webinar provides the business owner and her advisors with an overview of various restructuring and liquidation methods, a framework for how to decide between them, and practical tips for traversing the difficult environment that is financial distress.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/help-my-business-is-in-trouble-2021/
This document discusses captive insurance companies (CICs) which are insurance companies owned by businesses that provide self-insurance. It outlines how CICs are formed, regulated, operate, and the tax benefits they provide including deductible premiums payments and up to $1.2 million in untaxed premiums per year. It also discusses costs of setting up a CIC, exit strategies for owners, and other benefits like cost savings and flexibility.
7.30.20 How to Do a Venture Capital Financingideatoipo
This document provides an overview and summary of a presentation on how to do a venture capital financing. The presentation covers what venture capitalists look for in investments and good investors, pre-round considerations, negotiating term sheets, deal documentation, the diligence process, closing and post-closing issues, and common pitfalls. The presentation is given by a venture capital and emerging growth company attorney and provides high-level information on each stage of securing a venture capital financing.
Fundamentals Of Business Legal Issues Grand Valleyguestb5a8b82
The document provides an overview of a training session on fundamental business legal issues. It outlines topics to be covered including different types of business entities, starting a business, contracts, employment law, real estate, and insurance. The agenda includes introductions and covers business entities, starting a business, business and employment issues, leasing property, and other legal considerations important for business owners.
How to Prepare Your Startup for an M & A Exitideatoipo
You've labored for years on your startup and now it's time for an exit. Lack of sufficient preparation will lower the valuation of the company and may even kill your deal. San Francisco-based startup and venture capital attorney Jason Putnam Gordon of Polsinelli LLP will discuss how to properly prepare your startup for an M&A exit.
The program will cover the following:
Pre-M&A process
Parallel tracking additional capital raises
Overview of valuations and why you care
Liquidation waterfalls
Basic deal structures
Letters of Intent and Term Sheets
The diligence process
Negotiating the definitive agreements
The closing process
Post-closing issues
Common pitfalls and deal-killing mistakes
And much, much more!
The document discusses key legal aspects of negotiating shareholders' and investment agreements for startups. It covers the cycle of a typical venture capital investment including a letter of intent, investment agreement, capital increase, and closing. It then discusses provisions within the investment agreement including vesting which transfers founder shares if they leave the company, liquidation preference which favors investors in an exit, tag/drag rights during a sale, and anti-dilution clauses to protect investors from share dilution. Maximizing advantages and minimizing risks during negotiation of these legal structures is important for both founders and investors.
Securities Law: An Overview (Series: Securities Law Made Simple (Not Really)) Financial Poise
This document provides an overview of securities law. It defines what constitutes a security, outlines the key laws governing securities offerings, and describes the registration process and available exemptions from registration. It also discusses the consequences of failing to comply with securities laws and how the JOBS Act and FAST Act have changed certain rules. The expert panel will provide practical guidance and examples to help explain securities law concepts.
Investor's Capital Funding (ICF) provides alternative real estate financing in Texas, focusing on short-term loans secured by commercial and residential property. The company was founded by Managing Partners Rob Champion and Tom Wagner, who have over 30 years of combined real estate lending experience. ICF offers investors opportunities to earn returns of 10-12% by participating in non-traditional real estate loans that are secured by hard assets and have protective equity.
Venture capital involves long-term equity investments in high-risk, high-growth startups and projects. It provides funding across various stages from seed money for new ideas to expansion funding for growing companies. Venture capital funds are typically organized as partnerships between venture capital firms who manage the funds and limited partners who provide the capital. Venture capital funding offers startups financing and expertise in exchange for equity, but it also subjects companies to greater pressure and investor control.
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
This document provides an overview of capitalization structures for corporations. It discusses common stock and preferred stock, how shares are authorized and created, vesting of founders' shares, option pools, and maintaining accurate stock records like a capitalization table. Maintaining good records of shares authorized, issued, outstanding and stock options is important for transactions and inquiries about ownership. A capitalization table example is provided to illustrate how shares are tracked on a fully diluted basis.
How to Position Your Startup for Venture Capital Fundingideatoipo
This document provides an overview of how startups can position themselves for venture capital funding. It discusses foundational concepts like entity structure, founder agreements, financing stages from convertible notes to Series A/B rounds. Key terms are explained like pre-money valuation, post-money valuation, and dilution. Common mistakes made by startups are also outlined such as non-compliance with securities laws and not properly managing equity records. The presentation aims to give founders a better understanding of attracting VC investment and negotiating favorable deal terms.
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
During this webinar, veteran Silicon Valley venture capital attorney Jason Putnam Gordon will cover the following topics:
· What venture capitalists are looking for when they invest in a company
· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
Seed financings enable a startup to put together its initial team, build a working prototype, and begin to test the market. Often these investments are made via convertible debt or SAFEs. Veteran Silicon Valley startup and corporate attorney Jason Putnam Gordon will cover the following topics:
1. Required corporate structure
2. Legal considerations when pitching investors for seed financing
3. Differences between using convertible debt and SAFEs
4. Key terms and considerations when raising seed funding
5. Common mistakes and pitfalls that companies make when raising seed funding via convertible debt and SAFEs
6. How to close your seed financing
7. Important post-closing tasks
8. And much, much more
Buying Property in Your Pension
This presentation explores buying property within a pension fund. Key points include:
- A pension fund can buy a property with acquisition costs paid from pension assets. Rental income and sale proceeds are then tax-free within the pension.
- Benefits are tax efficiency, but risks include lack of diversification and property illiquidity.
- Revenue rules forbid connected parties using the property and require arm's length dealings. Borrowing facilities now exist with limits.
- The process involves gathering pension assets, identifying a property, arranging financing if needed, acquiring the asset and appointing managers.
How to Position Your Startup for Venture Capital Fundingideatoipo
During this webinar you will learn the basics of the venture model and path along with the necessary steps to take so that your company’s legal structure is an attractive investment. The discussion will cover:
1. Why a Delaware C-Corp is the most-common structure
2. How to document the relationship of the founders and early employees
3. The typical funding stages of a successful startup
4. An overview of convertible debt and SAFEs
5. Why it’s critical to run pro forma cap tables before financings
6. What happens in a venture financing
7. Why compliance with securities laws is important
8. Common legal mistakes in raising capital
9. And much, much more
This white paper examines the two primary sources of compliance obligations related to contracts: performance obligations and government regulations. For each source of compliance challenge, this paper identifies methods to improve compliance and contract management. Finally, this paper examines the kind of reporting that makes
Contracts create the network of relationships that allow organizations to thrive. Contracts generate revenue and control expenses. They allocate risks and responsibilities. Contracts create assets and liabilities. Contracts are the foundation of enterprise.
Compliance requirements touch every organization across industries. Regulations can lay down the rules of the road or impose barriers to business. Compliance is essential for success, like good brakes on a car.
Five Things About Five Things That Every Start Should KnowFredrikson & Byron
This document summarizes key considerations for startups presented by attorneys from Fredrikson & Byron law firm. It discusses:
1) Choosing an entity, founder vesting, assigning intellectual property, and allocating equity fairly between founders.
2) Raising money legally, avoiding misrepresentations to investors, understanding different securities, and balancing investor rights.
3) Properly classifying employees vs. contractors, obtaining intellectual property assignments, using equity grants and severance appropriately.
4) Repeatedly obtaining intellectual property assignments, using open source software carefully, deciding on patent strategy, and using confidentiality agreements.
5) Preparing for an exit from the start by considering how founders and investors will realize
Hedge Fund Association SEC Comment Letter on Definition of Accredited InvestorsMitch Ackles
On behalf of the private investment fund industry (hedge funds, private equity funds, venture capital funds and real estate funds) and other growing operating businesses seeking capital in the United States from private investors rather than banks, the Hedge Fund Association (HFA) is concerned with the U.S. Securities and Exchange Commission’s (SEC) discussion of proposed changes to the definition of an “accredited investor” under Rule 501 of Regulation D. The HFA strongly and respectfully urges the SEC to reject an increase in the current requirements, originally set in 1982, to account for inflation. It is important to note that the definition was significantly narrowed when the value of an investor’s primary residence was excluded under The Dodd–Frank Wall Street Reform and Consumer Protection Act. Such a change would fundamentally undermine the private placement market which infused nearly $50 billion into the United States’ economy in 2013 and will materially and negatively impact small business growth by reducing the number of accredited investors in the United States by more than half.
The document discusses accounting for partnerships. It describes how partnerships are organized, including partners contributing assets and liabilities that are recorded at fair market value, increasing or decreasing partner's capital accounts. It discusses accounting for partnerships by debiting partner withdrawals and crediting/debiting partner's capital for their share of net income/loss. Common methods for dividing partnership income or loss are also summarized, including using stated ratios, capital balances, or services and capital ratios.
Help, My Business is In Trouble! (Series: Restructuring, Insolvency & Trouble...Financial Poise
When a business becomes financially troubled, the business owner often experiences denial, paralysis, or both. Lenders commonly lose confidence and then trust in the business, as communications tend to break down, deadlines are missed, and promises are broken. Small business owners commonly have issued personal guarantees, so business failure can often lead to personal financial stress. The good news is the business and business owner usually has some options, and even some leverage. This webinar explains what a business owner should- and should not- consider and do when dealing with financial trouble. Specific topics include discussion of bankruptcy (Chapters 7 and 11); assignments for the benefit of creditors; and friendly foreclosures. This webinar provides the business owner and her advisors with an overview of various restructuring and liquidation methods, a framework for how to decide between them, and practical tips for traversing the difficult environment that is financial distress.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/help-my-business-is-in-trouble-2021/
This document discusses captive insurance companies (CICs) which are insurance companies owned by businesses that provide self-insurance. It outlines how CICs are formed, regulated, operate, and the tax benefits they provide including deductible premiums payments and up to $1.2 million in untaxed premiums per year. It also discusses costs of setting up a CIC, exit strategies for owners, and other benefits like cost savings and flexibility.
7.30.20 How to Do a Venture Capital Financingideatoipo
This document provides an overview and summary of a presentation on how to do a venture capital financing. The presentation covers what venture capitalists look for in investments and good investors, pre-round considerations, negotiating term sheets, deal documentation, the diligence process, closing and post-closing issues, and common pitfalls. The presentation is given by a venture capital and emerging growth company attorney and provides high-level information on each stage of securing a venture capital financing.
Fundamentals Of Business Legal Issues Grand Valleyguestb5a8b82
The document provides an overview of a training session on fundamental business legal issues. It outlines topics to be covered including different types of business entities, starting a business, contracts, employment law, real estate, and insurance. The agenda includes introductions and covers business entities, starting a business, business and employment issues, leasing property, and other legal considerations important for business owners.
How to Prepare Your Startup for an M & A Exitideatoipo
You've labored for years on your startup and now it's time for an exit. Lack of sufficient preparation will lower the valuation of the company and may even kill your deal. San Francisco-based startup and venture capital attorney Jason Putnam Gordon of Polsinelli LLP will discuss how to properly prepare your startup for an M&A exit.
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Pre-M&A process
Parallel tracking additional capital raises
Overview of valuations and why you care
Liquidation waterfalls
Basic deal structures
Letters of Intent and Term Sheets
The diligence process
Negotiating the definitive agreements
The closing process
Post-closing issues
Common pitfalls and deal-killing mistakes
And much, much more!
The document discusses key legal aspects of negotiating shareholders' and investment agreements for startups. It covers the cycle of a typical venture capital investment including a letter of intent, investment agreement, capital increase, and closing. It then discusses provisions within the investment agreement including vesting which transfers founder shares if they leave the company, liquidation preference which favors investors in an exit, tag/drag rights during a sale, and anti-dilution clauses to protect investors from share dilution. Maximizing advantages and minimizing risks during negotiation of these legal structures is important for both founders and investors.
Securities Law: An Overview (Series: Securities Law Made Simple (Not Really)) Financial Poise
This document provides an overview of securities law. It defines what constitutes a security, outlines the key laws governing securities offerings, and describes the registration process and available exemptions from registration. It also discusses the consequences of failing to comply with securities laws and how the JOBS Act and FAST Act have changed certain rules. The expert panel will provide practical guidance and examples to help explain securities law concepts.
Investor's Capital Funding (ICF) provides alternative real estate financing in Texas, focusing on short-term loans secured by commercial and residential property. The company was founded by Managing Partners Rob Champion and Tom Wagner, who have over 30 years of combined real estate lending experience. ICF offers investors opportunities to earn returns of 10-12% by participating in non-traditional real estate loans that are secured by hard assets and have protective equity.
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsideatoipo
This document summarizes a presentation about raising seed funding for startups through convertible notes and SAFEs (simple agreements for future equity). It discusses the speaker's background in venture capital law, structural considerations for startups, options for seed financing like convertible debt/equity, key terms to consider, and common mistakes to avoid. The presentation provides an overview of the process for closing a seed round financing and important post-closing tasks.
What is a "Private Fund?" (Series: PE, VC, and Hedge Funds De-Mystified)Financial Poise
This document provides an overview and agenda for an upcoming webinar on private investment funds. It begins with introductions for the moderator and panelists. The main document then summarizes that private investment funds, including private equity funds, venture capital funds, and hedge funds have grown significantly in recent years. It proceeds to outline the agenda for the webinar, which will explain what private funds are, how they differ from public investment options, and how investors can gain access to different private fund vehicles. Each type of private fund - private equity, venture capital, and hedge funds - will also be broken down.
What Kind of Loan? (Series: Borrower or Lender BE)Financial Poise
In a broad sense, most loans can be divided into two basic types: an asset-based loan (ABL) and a cash flow loan.
An ABL is made by a lender who underwrites the loan primarily by valuing the company’s assets, such as accounts receivable (A/R) and inventory. An ABL lender underwrites a loan based on the ability to liquidate its collateral should it need to. A “cash flow” lender, in contrast, while also secured against the borrower’s assets, underwrites the loan primarily based on the cash flow and general credit-worthiness of the borrower.
The distinction between these types of loans is only the beginning of understanding the many types of loans available to a business, because within each of the two types there are many sub-types.
This webinar takes the audience through a guided tour of the various borrowing options available to businesses, from both a business and legal perspective, to paint the overall landscape of the different types of lenders that exist and to provide a framework for understanding what type of lender and loan may make sense for any particular borrower.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/what-kind-of-loan-2019/
Equity Crowdfunding Comes of Age: Learn the New Rules for Success. A webinar ...EarlyShares
With the ban lifted on general solicitation, the SEC's new rules advance 80-year-old securities laws to take advantage of technology and modern capabilities, setting the stage for Accredited Equity Crowdfunding.
Now, the game-changing possibilities unlocked by the JOBS Act enable start-ups, small businesses and entrepreneurs to raise capital in an entirely new way from Accredited Investors.
Learn what the new rules mean for businesses and investors, along with the important regulation updates you need to know about Accredited Equity Crowdfunding. Discover what steps to take next, the available investment vehicles, how the accreditation process works -- and the benefits of an online platform that puts it all together. Hear from industry and legal experts who have been at the forefront of the discussion and progress in Equity Crowdfunding.
Speakers:
Joanna Schwartz, CEO of EarlyShares.com
Douglas S. Ellenoff, Partner at Ellenoff Grossman & Schole LLP
This webinar was hosted on September 24th, 2013.
Raising Capital: Negotiating with Potential InvestorsFinancial Poise
Every business needs capital (cash) to fund its activities. But not all capital is created equal. At the most macro level, a business can raise cash by selling equity or by borrowing (and these alternatives are not by any means mutually exclusive).
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Part of the webinar series: The Start-Up/Small Business Advisor 2022
See more at https://www.financialpoise.com/webinars/
Presented 5/11/23
This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round.
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· What makes a company a potential investment for a venture capital fund
· Pre-round issues
· What makes a good investor and how to find them
· How to negotiate a term sheet
· The deal documentation
· The diligence process
· Closing issues
· Post-closing issues
· Common pitfalls when raising venture capital
· And much, much more
About the Speaker
Jason Putnam Gordon is a results-oriented corporate attorney in the Emerging Growth and Venture Capital practice of the San Francisco office of K&L Gates. Jason has a passion for working with experienced entrepreneurs and executives to make their vision a reality.
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Jason works with companies based locally, elsewhere in the U.S. and internationally. Jason brings a unique skill set to the negotiating table and to litigation-minimization strategies in the boardroom. He started his career as a federal law clerk in the United States District Court for the Eastern District of Pennsylvania and then continued as a litigator handling corporate, securities, intellectual property, and commercial litigation before establishing a transactional practice.
Raising Capital: Negotiating with Potential Investors (Series: The Start-Up/S...Financial Poise
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This webinar explains the different types of capital available to fund a startup; how to identify potential funding sources; how to evaluate competing funding proposals; and how (and when) to negotiate financing terms. In addition, this webinar will address the kinds of investors for entrepreneurs to consider for their start-ups.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/raising-capital-negotiating-with-potential-investors-2021/
Show me the money! Debtors in Chapter 11 cases cannot survive without money to continue operations, pay vendors and professionals, and work to restructure debt and/or sell assets. Where do those necessary funds come from? There are really only two sources – cash the debtor has or can generate (in either case, generally the collateral of the secured lender) or new money coming into estate in the form of a post-petition debtor-in-possession (DIP) loan. At the very outset of the case, a debtor must obtain a court order allowing it to use its cash when that cash is the collateral of a third party or must obtain authority from the court to borrow funds. In either case, what the debtor is permitted or not permitted to do can seal the fate of a case from the outset. As a result, the battles over the terms of the use of cash collateral or DIP financing are some of the most hotly contested in the Chapter 11 process. This webinar examines the issue involved and how the various constituencies fight about them.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/cash-collateral-dip-loan-contests-2019/
What Not to Do In Equity: The Hexagon of Equity PitfallsPabloVerra
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This presentation discusses raising capital and the role of investment banks. It outlines sources of capital including non-dilutive options like loans and grants, as well as dilutive options like funding from friends/family, angels, venture capital, and private placements. It explains considerations for seeking equity capital such as how much is needed and losing company autonomy. It also defines accredited investors and exceptions for friends/family and equity crowdfunding. The presentation provides an overview of private placements and notes risks of raising money from non-accredited investors. It emphasizes the benefits of professional investors and outlines corporate housekeeping needs and factors for selecting an investment bank.
The document provides an overview of fiduciary responsibilities for retirement plan sponsors and administrators. It discusses the importance of regularly monitoring plan investments, obtaining expert advice, and properly documenting decisions. Key points covered include the duty to systematically review investments, consider retaining qualified advisors, ensure plan fiduciaries receive education on their responsibilities, and establish prudent processes for investment decisions.
The document provides an overview of fiduciary responsibilities for retirement plan sponsors and administrators. It discusses the importance of regularly monitoring plan investments, obtaining expert advice, and properly documenting decisions. Key points covered include the duty to systematically review investments, consider retaining qualified advisors, ensure plan fiduciaries receive education on their responsibilities, and establish prudent processes for investment decisions.
Eddie Lampert bought Kmart out of bankruptcy. W.L. Ross made a fortune many times over buying steel and other companies out of bankruptcy. Hedge funds and other distressed debt traders buy and sell millions of dollars of distressed securities and bankruptcy claims every day. A number of private equity funds focus exclusively on buying distressed businesses, fixing, and selling them. And fortunes are made when real estate crashes by those who have the dry powder to swoop in and buy when others are forced to sell. This webinar explains how to loan to, or purchase the debt of, a company in order to acquire it (a strategy commonly called “loan to own”); how to learn about opportunities involving distressed companies; and tips and best practices for participating in bankruptcy, Article 9, and other sales of distressed businesses (including the concept of serving as the “stalking horse).
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/opportunity-amidst-crisis-buying-distressed-assets-claims-and-securities-for-fun-profit-2020/
This document discusses various sources of financing for startups, including self-funding, crowdfunding, equity financing, venture capital, business angels, and debt financing. It provides details on bootstrapping, the different types of angel and venture capital investors, and common terms in VC deals like liquidation preferences, blocking rights, and warrants. The document also notes that while hundreds of thousands of startups are formed each year, only a small fraction receive venture capital funding.
CROWDFUNDING 2022 - Crowdfunding from the Start-Up's Perspective Financial Poise
How can businesses use the tools created by the JOBS Act to access capital? This webinar compares raising money online to traditional methods of capital raising. It also compares each of the different titles available under the JOBS Act. Finally, we discuss and compare the differences between security based crowdfunding and rewards based crowdfunding, exploring those instances where such a method would make sense.
Part of the webinar series: Crowdfunding 2022
See more at https://www.financialpoise.com/webinars/
Business Breakups (Series: Common Commercial Conflicts)Financial Poise
As any entrepreneur will attest, starting and operating a business comes with unique challenges. These challenges are a key reason that, by some estimates, half of the companies that are founded today will not exist four years from now. It can be argued that the effort and attention needed to find success precludes business owners from planning for failure. This webinar focuses on the realities of a failing business from the owners’ perspective. Join our panel of experts as they discuss the various considerations that should be given at the outset of start-up negotiations and through business breakup, including dispute negotiation and litigation.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/business-breakups-2019/
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs ideatoipo
Seed financings enable a startup to put together its initial team, build a working prototype, and begin to test the market. Often these investments are made via convertible debt or SAFEs.
In this presentation, Silicon Valley startup and corporate attorney Alidad Vakili discusses the following topics:
1. Required corporate structure
2. Legal considerations when pitching investors for seed financing
3. Differences between using convertible debt and SAFEs
4. Key terms and considerations when raising seed funding
5. Common mistakes and pitfalls that companies make when raising seed funding via convertible debt and SAFEs
6. How to close your seed financing
7. Important post-closing tasks
and more!
About the Speaker
Alidad Vakili is an attorney in the Palo Alto office of Foley and Lardner, an international law firm. He regularly represents startup and emerging growth companies at every stage of the company lifecycle—from startup to liquidity. He frequently advises clients on a variety of strategic growth issues including venture capital and private equity financing, private offerings, joint ventures and M&A transactions. His work includes not only advising on major corporate milestones but also significant involvement in day-to-day operations and strategic business issues, such as formation, governance, and commercial agreements.
Private Offering Exemptions and Private Placements (Series: Securities Law Ma...Financial Poise
The private capital markets have become an increasingly important source of funding for both private and public companies alike. Today total capital raised through private placements surpasses total capital raised in public offerings. What’s more, in recent years legislation like the JOBS Act has made a number of significant changes to laws and regulations governing private capital markets. Consequently, understanding the myriad private offering exemptions and how to properly conduct a private placement is crucial for not only for lawyers, but also for executives, managers, directors and anyone involved in corporate finance transactions.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/private-offering-exemptions-and-private-placements-2020/
Similar to Bootup startup financing by Clark Wilson (05-11-2011) (20)
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Robin van Emden, Senior Director of Data Science at Network Optix, presents the “Building and Scaling AI Applications with the Nx AI Manager,” tutorial at the May 2024 Embedded Vision Summit.
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Bootup startup financing by Clark Wilson (05-11-2011)
1. Bootup Startup Legal 101:
Startup Financing
May 11, 2011
Brock Smith & Mark Longo
Clark Wilson LLP
2. agenda
8. q & a 1. Plant the seeds for a
financing
7. information sources 2. financing structures
Legal Aspects of
Raising Financing
6. case studies 3. due diligence process
5. financing deal docs 4. financing terms
1
3. plant the seeds for a financing
Plant the corporate and legal
seeds to facilitate successive
Share
rounds of financing. Structure
Shareholders
Raise each round of financing Directors Officers
with your ultimate exit
transaction in mind.
Customer
Agreements
Corporate Structure
2 11
4. the new financing reality
Old rule of thumb:
raise as much capital as you can.
New rule of thumb:
raise only as much equity as you
need, bootstrap yourself, get to
revenue and cash flow positive
position.
Exhaust all available funding
sources.
3
6. financing structures
! Common Share offering (private placement)
! New class of Common Shares (e.g., Class B)
! Exchangeable Common Shares
! Preferred Share offering (Series A, Series B, etc.)
! Convertible debt
! Venture debt
! Bank debt
5
7. cross border financing structures
2010 Federal budget eliminated Section 116 Income Tax Act reporting / filing
burden on non-resident investors.
This change enables U.S. VC funds to directly invest in Canadian companies,
eliminating need to employ workarounds, such as re-organizing business into
U.S. entity or investing indirectly via offshore company.
Direct investment structure will often be the recommended deal structure
from corporate, tax and cost perspectives.
US C dn
Inves tors Inves tors
C anC o,
Inc.
6
8. securities law considerations
! Comply with applicable securities laws:
ü Canada: NI 45-106: exempt distributions from Prospectus / registration
ü Need comparable US federal / state exemptions for US investors
! Private placement Prospectus Exemptions:
ü Private issuer exemption
ü Friends & family
ü Accredited investor (Canada and US)
ü Employees, officers, directors, consultants
! Resale restrictions apply to exempt share purchases
7
10. due diligence process
! Due dili can make or break a deal
! Proactively create virtual data room
! Deals have a finite time to close
! Don t give investor reason to walk
9
11. due diligence
! Minute Book
! Shareholders agreements
! Founder vesting agreements
! Employment agreements
! IP ownership agreements
! Financial statements
! Technology docs. / Product roadmaps
! Material contracts
10
12. the business deal
! Deal size
! Type of security
! Investment Syndicate
! Use of proceeds
! Price: pre/post money cap table (basic / fully diluted)
! Tranches (Call or option)
11
13. general Ts & Cs
! Closing date
! Expenses of transaction
! Representations and warranties
! Conditions to closing
! No shop clause
! Break-up fee
! Confidentiality
12
14. common share financing
! Common voting shares
! Dividends discretionary
! Share pro rata on sale of company
! No redemption right on shares
! No conversion rights
13
15. convertible note financing
! Discount on conversion
! Valuation cap
! Interest rate
! Maturity date
! Automatic conversion events
! Optional conversion
! Secured or unsecured
14
16. preferred share financing
! Dividends
! Liquidation preferences
! Conversion rights
! Anti-dilution provisions
! Voting rights
! Redemption right
15
18. shareholders agreement
! Unanimous or not
! Board of directors
! Share transfer restrictions
! Right of first refusal
! Pre-emptive right
! Drag along
! Tag along
! Information rights
! Approval rights
17
20. financing info. sources
ü Canadian Venture Capital Association: www.cvca.ca
ü National Venture Capital Association: www.nvca.org
ü BCSC: http://www.bcsc.bc.ca/privateplacements.asp
ü Basil Peters blog: www.angelblog.net
ü www.startupcompanylawyer.com
ü www.seriesseed.com
ü Fenwick & West Angel/Seed Financing Survey
19
21. Q&A
Please direct inquiries to:
Mark Longo, Partner
mjl@cwilson.com | 604.643.3138
Twitter: markjlongo
LinkedIn Profile
Brock Smith, Partner
bhs@cwilson.com | 604.643.3186
Twitter: brocksmith2
www.cwilson.com
Editor's Notes
It costs thousands of dollars to put in place this firm foundation. Failure to do so properly can cost you millions of dollars in lost valuation in a financing and exit transaction. Jurisdiction of incorporation: most significant advantage of Federal (CBCA) incorporation is cross-Canada name coverage. Canadian incorporation is advantageous due to CCPC $750,000 capital gain exemption and access to government assistance (e.g., 35% SR&ED tax credits). Classes of shares: at time of incorporation, typical share structure is single class of common, voting shares without par value. Founder shares are often issued for nominal consideration. Board of directors: companies should bolster the independence and expertise of their board of directors and board of advisors in advance of seeking Angel and VC financing. It is more challenging today to attract directors due to heightened liabilities associated with being a director. Share Structure: If you only have one class of shares, then all shareholders must have the right to vote, the right to receive dividends and the right to share in the property of the company upon a wind-up of the business. If you want shareholders to have different rights, then you need multiple classes of shares (either more common or a class of preferred shares). Shareholders: The “ owners ” of the company. Vote to elect directors and make other fundamental decisions about the company. Right to receive dividends as and when declared by the directors. Directors: Charged with the management of the company. The law imposes a number of duties on directors: 1. act honestly, in good faith and in the best interests of the company. 2. act with the care, diligence and responsibility of a reasonably prudent person. Officers: Manage the day-to-day operations of the company (e.g., President, CEO, CFO, etc.)
The standard financing path of a tech company: founders Friends and family government grants (e.g., Telefilm; IRAP) SR&ED credits Angels Venture Capital Strategic partners Be mindful of “ hooks ” associated with government grants, such as need to maintain IP in Canada.
1. Equity: Raising money through the sale of shares or other securities. Existing shareholders' share ownership is diluted through the issuance of new shares to the investor. Investor return comes through sale of the shares at a price higher than the initial purchase price. Usually thought to be a riskier form of investment given that there is no guarantee that the value of the shares will increase. 2. Debt: Borrowing money for use in the business. Debt financing can be obtained through the shareholders (shareholders' loans) or third party sources (VCs, banks, credit unions, etc.). Debt can be secured (e.g., on the assets of the company) or unsecured. No shares are issued in a straight debt transaction, so share ownership is not diluted. Earns interest for the investor. Debt stands in line ahead of equity upon liquidation. 3. Convertible debenture (debt): a debt transaction that converts into shares at agreed-upon triggers, usually at the option of the investor and on certain defined events. The debt earns interest until conversion. This structure postpones the valuation negotiation.
Exchangeable shares: common shares that can be exchanged into a new class of shares on the next round of financing using a conversion ratio (e.g., 1 for 1). Convertible debenture (debt): a funding instrument for investors that converts to common or preferred shares at agreed-upon triggers, usually at the option of the investor. Earns interest, payment of which may be deferred. Usually converts to equity upon the next round of financing at a discount to the valuation of the next round. This debt instrument puts investors ahead of shareholders in case of liquidation and protects investors from down rounds in next round of investment. This is a more typical vehicle for U.S. financings but is increasingly popular in Canada. Convertible preferred shares: most common security for venture capital investments. Holders of this class of shares have “ preference ” over the common shareholders in the event of a liquidation of the company. Preferred shareholders can receive dividends exercise voting privileges and retain the option to convert to common shares. Venture debt is high yield debt that is often coupled with warrant coverage. A warrant gives an investor the right to purchase shares at a specified price for a specified period. Pursuant to the Small Business Venture Capital Act (BC), BC investors are eligible for a 30% tax credit for investments in “ Eligible Business Corporations ” . Register as EBC pro-actively.
Basic rule: you cannot sell shares in your company to anyone unless you issue a prospectus or rely on an applicable securities law exemption. Private issuer exemption is often the exemption of choice in early rounds of investment. No securities filings are necessary. Accredited Investor: an individual who meets one or more of the following: $1 million or more in net worth; income in excess of $200,000 in each of the last 2 years; or a joint income with a spouse exceeding $300,000 in the last 2 years.
Raising capital is a sales process with a long sales cycle. Obtain a scouting report on investors before approaching them. Know their investing track record, typical deal structures and the individual personalities of the investor and firm. Angels and VCs have different agendas and motivations. Financings are subject to negotiation between two or more parties of unequal bargaining strength.
Be prepared for the investor due diligence checklist by having your data room already in place.
Founder vesting: a term imposed on founders of seed and early stage companies in which the founder ownership is subject to a vesting schedule with nothing up front and linear vesting, typically over 3 – 4 years. The first twelve months ownership is often “ cliff ” vested at the first year anniversary with monthly, quarterly or annual vesting thereafter. The shares are held in escrow by the company and can typically be voted by the founder while they are in escrow. For more mature companies, vesting credit can be applied at the time of investment. The purpose of this agreement is to protect investors from an early, unplanned exit by a founder and to provide investors with the equity necessary to attract a new management team. Some investors demand that a certain percentage of a founder ’ s shares only vest upon a successful exit transaction.
Term Sheets are typically used to document the business deal as an expression of the parties ’ intent and are typically not legally binding on the parties other than provisions expressly made binding, such as confidentiality provisions. The financing terms that are “ market ” vary by jurisdiction, stage of financing and current market dynamics. Terms companies could negotiate in the dot-com frenzy of 1999 are markedly different than the terms that companies are forced to swallow in 2011. Fully diluted: total number of shares outstanding, including all securities that could be converted into common shares, such as warrants, stock options, convertible debt and preferred shares. In challenging economic times, deals are often tranched, with future tranches being based on company hitting specified milestones.
Negotiate a cap on transaction expenses. Representations and warranties: recourse against founders is frequently demanded. Negotiate limitations and caps on this recourse. Conditions precedent to closing typically include: Completion of due diligence by investors; Approval of investment committee; Execution of definitive agreements; No material adverse change to the business; All approvals and consents received. No shop: for a specified period of time after signing term sheet, company cannot shop the deal to other investors. Break fee: if deal does not close due to the company ’ s actions, company must pay investor agreed upon fee.
Voting: typically, common shares entitle the holder to 1 vote for each share held. Dividends: are typically declared at the discretion of the board of directors. Dividends are rarely declared in early stage technology companies. Liquidation or sale of company: the common shareholders will participate in the proceeds of any sale or liquidation of the company proportionate to their percentage shareholders (after paying any debt and any liquidation preference on any preferred shares). Redemption right: gives the investor the right to require the company to buy back his/her shares under certain conditions (e.g., a number of years following the initial investment). Common share offerings rarely give the investor this redemption rights. Conversion rights: a plain vanilla common share offering will not give the shareholder the right to convert his/her/its shares into another class of shares, either on the next round of financing or otherwise.
Discount on conversion: convertible notes are typically structured such that the holder receives a discount on the valuation of the next (qualified) round of financing. Frequently, the size of the discount increases with the passage of time. Valuation cap: investors will often seek to negotiate a cap on the valuation on the next round. Interest rate: the interest rate is negotiable. At this stage of the company, a convertible note constitutes a high risk investment and will typically attract a relatively high interest rate to compensate for this risk. Maturity date: the date when the loan must be repaid by the company in the event that the convertible note has not converted to equity beforehand. 1 – 2 year terms are typical. Automatic conversion events: the convertible debt will automatically convert to equity upon certain specified events, such as: (i) qualified initial public offering; (ii) qualified equity financing. Optional conversion events: convertible notes are often convertible at the option of the holder at any time prior to maturity. Security: convertible notes can be secured on the assets of the company by a general security agreement, or can constitute an unsecured debt.
Dividends: proceeds paid by the company as a return on an original investment. Generally, dividends are discretionary with the company and are not paid unless contracted for. Dividends can be paid in cash or in kind (i.e., in shares). Dividends can be cumulative, non-cumulative, participating and non-participating. Liquidation preference: a preference offered to a certain class of shares over other share classes, upon liquidation of the ownership of the company. Participating preferred shares share (participate) with the common shares upon liquidation or sale. Upon liquidation, those shareholders with a liquidation preference will receive their original investment, any dividends owed, and possibly other consideration, before holders of common shares receive any distribution. Some deals cap the liquidation preference (1x, 2x, 3x, etc.) Conversion rights: rights by which preferred shares convert to common shares, which can be mandatory as in the case of an IPO, and voluntary where certain milestones or met or with the passage of time. Anti-dilution provisions: the means by which a shareholder preserves a percentage ownership in the company without making a new investment. Typically, anti-dilution protection is provided in the event of a stock split, stock dividend or similar recapitalization. A “ full ratchet ” provides a complete preservation of percentage ownership in all circumstances, including protection in the event of a subsequent sale or merger. A Modified ratchet does not provide for ratcheting in cases of a new subsequent offering at prices lower than the per share investment price (down round) or employee equity offerings. Pay to play: a term that requires earlier investors to “ pay ” (participate pro rata, or at some dictated percentage in future financings) to continue to “ play ” (not having their shares converted from preferred to common shares, and thereby losing rights). Redemption right: gives the investor the right to require the company to buy back his/her shares under certain conditions (e.g., a number of years following the initial investment).
There is no such thing as an off-the-shelf shareholders agreement. Clark Wilson has a checklist that can be circulated with the factors to take into account in your situation. Corporate governance is becoming increasingly important to companies and investors alike. Board of directors independence and expertise is paramount. Board sizes range from 3 – 7 in typical Angel and VC backed companies. Watch for conflicts of interest within board of directors due to capital structure and investor nominees on Board. Roster of board of advisors and observers to be negotiated. Right of first refusal on share transfers: requires a shareholder to offer his/her shares to existing shareholders before selling them to a third party. A mechanism to control share ownership. Pre-emptive right: each holder of at least x% of the common equity of the company (on an as converted to common basis) shall have the right to provide financing to the company on the same terms offered to third parties in the amount necessary to maintain such holder ’ s pro rata ownership percentage of the company. A mechanism that prevents existing shareholders from having their share ownership percentage diluted without their consent. Drag-Along Right: If a certain majority of shareholders chooses to sell their shares to a third party, then that majority can require the other shareholders to sell their shares to the same purchaser on the same terms. Prevents an obstructionist shareholder from blocking a sale of the company. Tag-Along Right: The reverse right that allows a minority shareholder to join in on (tag along with) a sale of shares by the majority shareholders. Information rights: financial statements; monthly CEO reports, etc. Approval rights include issuance of shares; management compensation changes; borrowing/lending, etc.
Example of private company that ran itself like a public company during successive rounds of venture financing and ultimately, exit transaction with U.S. publicly traded acquisitor. Example of private company whose capital structure boxed itself into a corner, followed by disorganized due diligence process that led to an asset sale at a significantly reduced valuation through a CCAA bankruptcy process. Microsoft M&A guy: there is a higher bar these days to getting deals done. Companies need to be cleaner. Being disorganized frustrates the investor ’ s or buyer ’ s need for information and hurts the credibility of the management team.