Bb vlado def presentation 01 apr2011


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Bb vlado def presentation 01 apr2011

  1. 1. Start-UpsF o r m a t i o n & V C F i n a n c i n g A p r i l 2 0 1 1 Vladimir Defrančeski Palo Alto CA
  2. 2. IntroBoundBreaker, Silicon Valley AdvisorStanford JD, UCSD MA, UCLA BA, UCSD Biotechnology Mfg. prof. cert.Sony Engineering and Manufacturing of AmericaVenture Law Group, Wilson Sonsini Goodrich & Rosati, Baker & Mckenzie $250Mil+ in venture capital transactions and M&A exitsStart-ups: Rackable (NASDAQ: SGI) FMS Corp. BlooSee, Inc. ($650K Series A in 4/2011)b. Beograd, Wash. DC 1980’s, California 1988 -
  3. 3. Ecosystem SOURCES OF VENTURE CAPITAL5% Pension Funds, Endowments, Sovereign Funds, Corporations, Funds of Funds, Family Offices, High Net Worth Individuals...$13Bn in 2010 into US VC FundsFund Management Companies: Sequoia, Benchmark, Kleiner, NEA, DFJ... Venture >25% Capital IRR Funds:I, II, III,.. You (less 20% carry) Investments Exits0 Incubators 5 Only 2 1/2 10 years Angels ways to exit: Friends - Sell to the public and Family - Sell to an acquirer ~ Private market
  4. 4. Legal EnvironmentCorporate LawSecurities LawIntellectual Property LawEmployment LawTax Law[Immigration Law]
  5. 5. Corporate LawOnly one form of currency for Silicon Valleyventure capital investing: shares of stock in acorporationThere are 50 state jurisdictions, but only 2 areused: Delaware or CaliforniaKey elements of a corporation: Liability of owners limited to the assets of the corporation Owned by stockholders - one share, one vote; each class and series of stock must be treated equally Directed by directors - personal liability Managed by managers - appointed by directors Equity or Debt -> investor <- Dividend or Compensation Stockholders are subordinate to Creditors
  6. 6. Corporate LawDocuments required to create and maintain a corporation: The constitutional document with which the Public Charter corporation receives its permission from the state to exist. Only stockholders can change. Bylaws are the rules for governing the Bylaws corporation. Stockholders or Directors can Non- change. Public Minutes Minutes are the written record of Director actions, instructing the Officers to do things.
  7. 7. Securities LawOnly two classes of stock used for tax reasons: Common Stock - for founders, employees and consultants Preferred Stock - for investorsAll stock must be registered unless there is anexemption from registration: State and Federal exemptions for private sales of stock Securities Act of 1933 Section 4(2) Regulation D: Accredited Investor Regulation S
  8. 8. IP LawIntellectual Property is a Business Asset.There are 5 main ways to protect it: Patents: preliminary, utility, design Copyrights: automatic and registered Trademarks: marking, use, Lanham Act Trade Secrets: keep your secrets secret Assignment
  9. 9. Employment LawAt-will employmentNotice and severance mechanismsW-2s vs. independent contractorsNoncompetes are evil and illegal in SV, unlessyou get paid a lot of moneyVesting - not more than 5 years
  10. 10. Tax LawFair market valueCorporate income is double taxed[Avoid worldwide income taxation]Long term capital gains tax83bOptions are taxed at exerciseInterest payments are taxed as ordinaryincome, so avoid interest**California Lender Law
  11. 11. The Start-UpDelaware corporation: (1) Certificate ofIncorporation, (2) Bylaws, (3) MinutesBoard of Directors:founders -> common + investor + independentAppoint Officers: CEO, CFO and SecretaryIssue Stock: Restricted Stock PurchasesFounders’ stake 85% -> 45%Common Stock :: Preferred Stock
  12. 12. The Venture Round Delaware Corporation Post-Money Stockholders Series B Preferred Stock VC 34% Pre-Money Board of Directors 6,500,000 Series A 13% Angels 2,500,00015% Option Pool 1,500,000 Officers 8% Option Pool 1,500,000 Common Stock Common Stock85% Founders 8,500,000 Employees 45% Founders 8,500,000 [Creditors] 10,000,000 19,000,000 shares shares
  13. 13. Elements of the Deal Investor Right Transaction Document(s)Liquidation preference CharterAnti-dilution protection CharterProtective provisions CharterVoting rights Charter/Bylaws/Voting AgtRegistration Rights Investor Rights Agt (IRA)ROFR & Co-Sale IRA/ROFR & Co-Sale AgtDrag-along ROFR& Co-Sale Agt
  14. 14. How much money can you make?90% of exits are M&A90% of M&A exits are $50Mil - $100MilSo, if you own __%, $50Mil - $100Mil x __%$50Mil x 45% = $22Mil / 3 = $7.33Mil{$500Mil x 10% = $50Mil / 3 = $16Mil}But, to get there: listen and change
  15. 15. BATNAYou meet great VCs, angels, engineers andentrepreneursYou learn a lot, fast, from the bestYou get great new ideasYou go work for GoogleYou have no regretsAnd, it’s iterated ∞ live and die many times
  16. 16. Silicon Valley Contact Vladimir de Franceschi De Franceschi ∞ Shefayee mobitel +1 (650) 391-4837 Attorneys at Law 228 Hamilton Avenue 3rd Floor Skype: vlado.def Palo Alto CA 94301 @vladodef vlado@boundbreaker.org has links to resources on start-ups,entrepreneurship and venture capital: sample deal docs, cap tablesimulators, deal database, video lectures, angel directory...