The Entrepreneur's Legal Cookbook presentation startup palm beach - session 2
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The Entrepreneur's Legal Cookbook presentation - how founders should split the pie and protecting your secret sauce
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The Entrepreneur's Legal Cookbook presentation startup palm beach - session 2
- 1. Recipes and juicy legal tidbits you can sink your teeth into™ Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com
- 2. About me Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com I like entrepreneurship, the law and food, so I’m mixing them together to provide legal information to entrepreneurs in delicious, digestible, bite-sized pieces. As a shareholder at Gunster, I have helped my clients, including various Inc. 500 and Inc. 5000 companies, launch new products, negotiate key deals, and assimilate new divisions into existing legal frameworks. I have also helped numerous start-ups get funded, deal with the myriad of issues that arise as they grow, acquire companies and be acquired. What else? I have Martindale-Hubbell’s AV Preeminent rating, have been recognized by Super Lawyers, Florida Trend Legal Elite and the South Florida Legal Guide, have appeared on television, and have been quoted in publications such as the National Law Journal, E-Commerce Times, Florida Trend magazine, the South Florida Business Journal, and the Miami Herald.
- 3. What’s not on the menu? Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com
- 4. What’s on the menu? Digestible, bite sized, nuggets of legal information, to help entrepreneurs get cooking and not get burned. Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com
- 5. Today’s Special! FOUNDERS’ MARGUERITA PIZZA Decide how to split the pie before you bake it. Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com
- 6. FOUNDERS’ MARGUERITA PIZZA Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com INGREDIENTS: 1 package of ready-to-serve thin pizza crust (12 inches in diameter) 2 medium tomatoes, thinly cut 4 ounces shredded mozzarella cheese 3-4 basil leaves, cut into strips 2 finely chopped garlic cloves 1 tablespoon extra virgin olive oil salt and pepper DIRECTIONS: - Preheat the oven to 450 degrees. Take this time to think about how issues with your founders could ruin your business. - Use a brush to spread the olive oil over the crust, including the edges. Be liberal with the olive oil, but not so liberal with how you spread ownership among founders and future employees. - Sprinkle the garlic, then a thin layer of the mozzarella cheese and then the tomatoes over the crust, similar to how the founders will contribute money, resources and time into the business. How you end up splitting the pie between founders and future employees depends on these contributions. - You may want to season the tomatoes with salt and pepper. Doing so is key to the flavor of the pizza. A key component to the flavor and outcome of your venture is implementing ways to incentivize founders to remain with it. - Spread the basil leaves over the pie; some may fall off the pie, just like founders may quit or be forced out of the business. - Cook for approximately 10 minutes. While you wait, look over the next slide. - Remove from oven, cool for one minute and cut into slices. - Sit down with your founders, enjoy some pizza, and talk about how you plan to split the pie.
- 7. FOUNDERS’ MARGUERITA PIZZA Will founders like their piece of the pie? Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com INGREDIENTS: Bylaws Shareholders Agreement Operating Agreement Invention Assignment Non-Competition Proprietary Information DIRECTIONS: Make sure these tidbits are crystal clear: - Ownership of assets, inventions, and IP - Restrictions on transferring ownership - Pre-emptive rights - Buy-sell rights (Put and Call Rights) - Right of first refusal/Right of first offer - Drag-along rights/Tag-along rights - Access to information - Non-Competition obligations
- 8. FOUNDERS’ MARGUERITA PIZZA Will investors like how you split the pie? Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com INGREDIENTS: Right of First Refusal Right of First Offer Drag-Along Rights Tag-Along Rights Buy-Outs Other Restrictions Founders’ rights might discourage investors down the road
- 9. Today’s Special! YOUR SECRET SAUCE Don’t spill your competitive advantage. Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com
- 10. YOUR SECRET SAUCE Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com INGREDIENTS: ½ cup sour cream ¼ cup mayonnaise 2 tbsps. chopped fresh dill or 1 tbsp. dried dill 1 tsp. lemon juice salt and pepper to taste DIRECTIONS: • Mix all ingredients together and think about the consequences of the competition getting a hold of your company’s trade secrets. • Cover and refrigerate 1 to 2 hours before serving. Instead of napping on the couch, take this time, or more, to try and identify all of your company’s trade secrets and read the next slide. • It’s great to dip veggies or crackers, or to spread on fish, pork chops or even hamburgers. It’s also great because every time you take a bite, it will remind you to take reasonable steps to protect your trade secrets.
- 11. YOUR SECRET SAUCE Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com INGREDIENTS: Trade Secrets Confidentiality Agreements Noncompetition Agreements Protective Measures DIRECTIONS: • Identify trade secrets; mark as “confidential” • Don’t let new employees bring along competitors’ trade secrets • Require Confidentiality Agreements • Require Noncompetition Agreements • Train your staff • Limit disclosure • Use technology • Implement work policies
- 12. What are we having next time? Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com THE PERFECT BOARD Brings Wisdom and Credibility RAMEN PROFITABLE SALAD Legal Stuff that Matters on a Small Budget RAISIN FUNDS FONDUE Getting Enough Dough to Keep Cooking
- 13. Recipes and juicy legal tidbits you can sink your teeth into™ Gaida Zirkelbach @Gaida in/gaida LegalCookbook.com
Editor's Notes
- Bylaws – rules governing management and appointing directors, committees and duties of officers. Ownership – company should own. Don’t want a founder coming out later saying he or she owns key assets. Transfer Restrictions – restrict ability to sell or transfer shares without consent of other shareholders or without giving an opportunity to buy the shares. Can limit sharing only to affiliates or certain permitted entities/people or for a period of years (ex. 2 to 5). - control and know who partners are - know that stockholders are committed to the company Pre-emptive rights – gives stockholders right to buy a pro rata portion (based on ownership) of any future stock issuances. This prevents company from diluting ownership interests. Buy/put right – right to exit the company by selling interest to company or other stockholders at pre-agreed price, based on formula or at price determined by 3rd party. Ex. Give right when someone is terminated, minority stockholders, all stockholders when they can’t agree on major issues. Sell/call right – company or majority owner right to buy equity interests of another stockholder in certain circumstances. Ex. Default of agreement by other stockholder, or termination of employment. Purchase price often lower than market value. Right of first refusal – stockholder can’t sell shares without first giving others right to buy on same terms as third party offer. Usually only for cash offers. Right of first offer – offer shares to the company and other stockholders before offering to a third party (on same terms that would sell to third party) Drag-along rights – majority stockholder who wants to sell company to a third party may force minority to participate in the sale. Where minority should not prevent the sale of a company. Tag-along – allows minority to sell its ownership interests to a third party that is buying the majority stockholders ownership interests. Where minority should also get the benefit of the majority’s sale (realizing value of ownership without letting participate.
- These provisions impede flexibility of the company’s business and their investment down the road. Investors typically want to eliminate or scale back these rights for early investors and founders. Private equity will usually make these types of rights a condition to investing.